CONSTITUTIONAL COURT OF SOUTH AFRICA
Case CCT 114/21
In the matter between:
TRANSNET SOC LIMITED Applicant
and
TOTAL SOUTH AFRICA (PTY) LIMITED First Respondent
SASOL OIL (PTY) LIMITED Second Respondent
Neutral citation: Transnet SOC Limited v Total South Africa (Pty) Limited and
Another [2022] ZACC 21
Coram: Madlanga J, Madondo AJ, Majiedt J , Mhlantla J, Pillay AJ,
Rogers AJ, Theron J, Tlaletsi AJ and Tshiqi J
Judgment: Madlanga J (unanimous)
Heard on: 16 November 2021
Decided on: 21 June 2022
ORDER
On appeal from the High Court of South Africa, Gauteng Local Division, Johannesburg:
MADLANGA J
2
1. Leave to appeal is granted only in respect of the questions whether the
variation agreement was terminable and, if it was, whether it was
terminated validly.
2. The appeal is allowed and, as a consequence, it is declared that the
variation agreement was terminable, was terminated validly and came to
an end on 13 September 2020.
3. The order of the High Court of South Africa, Gauteng Local Division,
Johannesburg, is set aside insofar as it relates to the questions referred to
in paragraph 1 and to costs.
4. Each party must pay its own costs in this Court and in the High Court.
JUDGMENT
MADLANGA J (Madondo AJ, Majiedt J, Mhlantla J, Pillay AJ, Rogers AJ, Theron J,
Tlaletsi AJ and Tshiqi J concurring):
Introduction
[1] An agreement concluded in 1967 for the transportation of crude oil from Durban,
KwaZulu-Natal, to an inland refinery sited in Sasolburg, Free State, did not expressly
provide for termination. This agreement entailed what was known as the neutrality
principle. So called because – in order to attract the participation, in an inland refinery,
of an established foreign oil company, Total South Africa (Pty) Ltd (Total) which is the
first respondent – the South African government had to make a contractual undertaking
that the inland refinery would not be disadvantaged by the cost of transporting crude oil
from Durban to the inland refinery. Put differently, the cost had to be structured such
that it was as if the inland refinery was sited at the coast.
[2] A variation of the 1967 agreement (variation agreement) was concluded some
24 years later, in 1991, t o be exact. Albeit with a change in the formula, the variation
MADLANGA J
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agreement maintained the neutrality principle on the cost of transporting crude oil from
Durban to the inland refinery. The variation agreement also made provision – in vague
terms – for any party to give at least three years’ notice of its intention to “disregard the
contents of [the variation agreement] subject to the arrangement that a full agreement
of conveyance for crude oil is being prepared and that such agreement will embody the
contents of this [agreement] and supersede this [agreement]”. In September 2017 the
applicant, Transnet SOC Ltd (Transnet), which had since stepped into the shoes of the
government, one of the original parties to the 1967 agreement, gave a three-year notice
terminating the variation agreement. In the main, what is now at issue before us is
whether the variation agreement which, when looke d at cumulatively with the
1967 agreement had been in existence for some 50 years, is terminable and – if it is –
whether it has been lawfully terminated. Another issue is whether – absent cancellation
of the contract – claims for contractual damages where a refund is sought in respect of
amounts that were allegedly overcharged disclose a cause of action.
[3] The matter comes to this Court as an application for leave to appeal against a
judgment of the High Court of South Africa, Gauteng Local Division, Johannesburg.1
Background
[4] Largely, the facts are not contentious. At the end of World War II there was an
increased demand for petroleum products. Total and other refineries obtained these
products from refineries located at the coast, mostly Durban, although some supply also
came from Cape Town. The coastal refineries did not have the capacity to meet the
demand, the greatest of which was inland. The situation was made worse by the fact
that – because of apartheid – South Africa was facing isolation. Its neighbour, the then
Rhodesia (now Zimbabwe), was subject to an international oil embargo and depended
on South Africa for its supply of petroleum products. Fearful of running out of its own
supplies, the apartheid government decided to establish an inland refinery in Sasolburg.
1 Total South Africa (Pty) Ltd v Transnet SOC Ltd, unreported judgment of the Gauteng High Court, Johannesburg,
Case No 2013/38820 (9 October 2020) (High Court judgment).
MADLANGA J
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It approached Total, a French controlled oil company, France being a country which –
according to T ransnet – had “a markedly pragmatic relationship with apartheid
South Africa”, to participate in this project. Total was reluctant to accept the proposal
because its plan was to invest with Mobil, another oil company, in a coastal refinery.
[5] In the end, as a pre-condition for its participation in the govern ment’s proposal,
Total required an undertaking that it would not be placed at a disadvantage compared
to a coastal refinery. The 1967 agreement, whose main feature was the neutrality
principle, was then concluded. The agreement recorded its purpose as being to ensure
that “an inland refinery will not at any time be placed at a disadva ntage as regards
transportation costs in relation to a refinery sited at the coast”. It was constituted by
two letters. The first – dated 2 July 1967 – was from the Department of Trade and
Industry to Total. The second letter – dated 3 July 1967 – was a response from Total
accepting the terms of the first letter. A specific tariff was fixed in the first letter. Crude
oil was to be transported at 40 cents per 100 lbs. The government and Total were
satisfied that this tariff guaranteed neutrality. 2 The tariff was subject to revision at
stipulated intervals.
[6] The entity that was to be contractually bound on behalf of th e government was
the “Administration”. The Administration was created in terms of the Railways and
Harbours Control and Management (Consolidation) Act 3 (Railways Act). The
Administration was going to be responsible for the transportation by means of a pipeline
of crude oil from Durban to the Sasolburg inland refinery.
[7] On 8 December 1967 the National Petroleum Refiners of South Africa (Pty) Ltd,
commonly known as Natref, was incorporated to own the inland refinery at Sasolburg.
Its shares were, and conti nue to be, held by Total (36.36%) and Sasol Oil (Pty) Ltd
(Sasol), the second respondent (63.64%). At that time Sasol, which is now privately
2 In this regard, the first letter said the tariff “appears to be suitable in placing the [inland] refinery in a balanced
transport position vis-à-vis the coastal refineries on the situation as assessed”.
3 70 of 1957.
MADLANGA J
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owned, was a wholly -owned government company. Natref was to refine crude oil
exclusively for its shareholders in proportion to their shareholding.
[8] The repeal of the Railways Act by the South African Transport Services Act 4
brought about the creation of a commercial government enterprise called the South
African Transport Services (SATS). SATS replaced the Administration and continued
to honour the neutrality principle. In terms of the Legal Succession to the South African
Transport Services Act, 5 Transnet, a wholly -owned government company, succeeded
SATS. Initially Transnet refused to recognise the neutrality pr inciple. During the
late 1980s it announced a 15% increase in the conveyance of crude oil that was to take
effect on 1 January 1991. This had the effect of breaching the neutrality principle as
there was no increase to tariffs for the conveyance of petro l, diesel and avtur
(aviation fuel). Total and Sasol would have none of it. Sasol threatened to build its
own pipeline for the transportation of crude oil from Durban to the Natref refinery in
Sasolburg. It also indicated its preparedness to purchase Tr ansnet’s pipeline. The
fruition of any of these options would have meant substantial loss of revenue by
Transnet. This led to a forced change of heart. Negotiations between Petronet, a
division of Transnet, on the one hand, and Total and Sasol, on the other, resulted in the
conclusion of the variation agreement on 2 December 1991. This agreement constituted
a variation of the 1967 agreement.
[9] Like the 1967 agreement, the variation agreement comprised two letters, the first
from Transnet proposing terms and the second from Total and Sasol accepting the
terms. It maintained the neutrality principle, but on different terms. The percentage
increase of the tariff for the transportation of crude oil was pegged to increases in the
transportation by Transnet o f refined petroleum products. In this regard, clause 1
provides that “the percentage increase in the crude oil tariff will not exceed the weighted
average percentage increase of any adjustments of petrol, diesel and [a]vtur tariffs”.
4 65 of 1981.
5 9 of 1989.
MADLANGA J
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[10] Total and Sasol explain that the crude oil transported from Durban to the Natref
refinery contains matter which – in the refining process – gets removed and is of no use
to them. That matter is not an insignificant addition to the volumes of crude oil
transported to the Natr ef refinery. Simply put, the volumes of refined products that
Total and Sasol produce and sell are less than the volumes of crude oil transported from
the coast to Natref. If there were to be a 100% charge on the transportation of these
volumes (i.e. including the unusable matter), Total and Sasol would be disadvantaged.
It is for this reason that the transportation of crude oil to Natref was pegged to the
weighted average of refined products, namely petrol, diesel and avtur. In essence, the
unusable matter is taken out of the equation in costing transportation.
[11] The variation agreement was largely complied with for some years. In 2005
Transnet took the view that the legal landscape had changed to such an extent that the
variation agreement had been rendered inoperable. According to it, this was the result
of the coming into force of two Acts, the National Energy Regulator Act 6 and the
Petroleum Pipelines Act.7 The National Energy Regulator Act establishes a regulator,
the National Energy Regulator (Nersa) which, amongst others, has the mandate to
undertake the powers of the Petroleum Pipelines Regulatory Authority set out in the
Petroleum Pipelines Act. One of these functions is to set or approve tariffs and charges
in respect of conveyance on pipe lines.8 The thrust of Transnet’s contention was that,
since the power to set and approve tariffs now vested in Nersa, it had become legally
impermissible for it to comply with the variation agreement. Put differently, it no longer
lay with Transnet to set tariffs.
[12] The first tariff in which Transnet departed from the neutrality principle was the
tariff effective from 6 August 2008. This tariff predated the setting of tariffs by Nersa.
In Transnet’s 2008 determination, the crude oil tariff was increased by 10.25% whereas
6 40 of 2004.
7 60 of 2003.
8 Section 4(f) of the Petroleum Pipelines Act.
MADLANGA J
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the tariff for petrol, diesel and avtur was increased by less than 1% . The first tariff
determination by Nersa was effective from April 2010. The 2010 tariff essentially
observed the neutrality principle. Things changed in Nersa’s 2011 tariff determination;
the crude oil tariff was increased by about 107% whereas the tariff for petrol, diesel and
avtur was increased by about 80%. Although subsequent tariff determinations have
essentially observed the neutrality principle, the differential increases in 2008 and 2011
have obviously had, and still have, annual knock-on effects.
[13] Aggrieved by Transnet’s resolve to subject it to the differential tariffs of 2008
and 2011, on 16 October 2013 Total brought suit in the High Court. Under one claim,
it sought a declarator that the variation agreement is valid and binding and an order
directing Transnet to comply with the variation agreement by ensuring that increases in
tariffs do not exceed the stipulation in the agreement. Under another claim Total sought
a refund as contractual damages in the sum of R838 million by which it alleged it was
overcharged as a result of an alleged breach of the variation agreement. Transnet
defended the action. As part of its defence it contended that – in the face of Nersa’s
statutory mandate to determine tariffs for the transportation of crude oil on petroleum
pipelines – the variation agreement could no longer be valid and binding . This issue
was separated in terms of rule 33(4) of the Uniform Rules of Court for determination
before the other issues.
[14] On 4 June 2015 Coppin J decided the separated issue in Total’s favour and held
that the variation agreement continued to be valid and binding. With leave of the
High Court, Transnet appealed to the Supreme Court of Appeal. On 14 September 2016
the Supreme Court of Appeal held that the variation agreement obliged Transnet to
allow discounts, within the maximum tariffs set by Nersa, so as to give effect to the
neutrality principle. It too held that the variation agreement was binding and the appeal
failed. On 9 November 2016 the Constitutional Court dismissed an application for
leave to appeal.
MADLANGA J
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[15] On 27 July 2017 Sasol entered the fray, seeking relief against Transnet on
substantially similar bases as Total. The refund claimed by Total and Sasol totalled just
under R2 billion. According to Transnet, this accounts for almost half of its profit after
tax.
[16] Plainly as a result of its failure on the separated issue, on 14 September 2017
Transnet wrote letters t o Total and Sasol to the effect that it was giving a three -year
notice of termination of the variation agreement. Total and Sasol amended their
particulars of claim by seeking orders directing Transnet to perform in terms of the
variation agreement. This , on the basis that the notice of termination amounted to a
repudiation, which they did not accept.
[17] In addition to defences that traversed factual issues with regard to what was
claimed, Transnet took defences that raised legal questions, including questi ons of
interpretation of the variation agreement. First, it raised a special defence that the
claims for a refund did not disclose a cause of action (cause of action defence). This
defence was to the effect that – absent cancellation of the agreement – recognised
remedies in law do not afford a right to recover allegedly overpaid amounts as damages.
Instead of cancellation, continued the special defence, enforcement of the agreement
was sought. Second, according to Transnet, to achieve neutrality, Total and Sasol were
not entitled to derive a profit from the transportation costs they were being charged.
This is a question of interpretation. Transnet alleged that Total and Sasol were, in fact,
deriving a profit from transportation costs. Third, and as was to be expected, Transnet
pleaded that its notice of termination complied with clause 5 of the variation agreement
and was, therefore, valid. At this point let me quote clause 5 of the variation agreement.
It says:
“Each party shall give the other at least three years notice of any intention to disregard
the contents of this [l]etter of [a]greement subject to the arrangement that a full
agreement of conveyance for crude oil is being prepared and that such agreement will
embody the contents of this letter and supersede this letter.”
MADLANGA J
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[18] The two actions by Total and Sasol were consolidated. Yet again, there was a
separation of issues in terms of rule 33(4). The issues that were to be determined first
were the three defences set out in the preceding paragr aph that raised legal questions.
The High Court held against Transnet on all the issues.9 It refused leave to appeal, and
so did the Supreme Court of Appeal.
The approach to this Court
[19] Transnet now seeks leave to appeal from this Court. The application concerns
only two of the three issues that were determined by the High Court. The first is whether
the variation agreement is terminable and, if it is, whether it has been lawfully
terminated. What is key to the determination of this issue is an interpr etation of the
variation agreement. The second is whether Total and Sasol’s claims for a refund do
disclose a cause of action.
[20] On the first issue, Transnet argues that the High Court’s holding on whether the
variation agreement is terminable has the effect of locking Transnet into an evergreen
contract; evergreen in the sense of existing in perpetuity. It bases this contention on the
High Court’s view that “[a]bsent the ‘full agreement ’ of conveyance of crude oil, any
attempt to cancel the [variation] agreement is ineffectual and of no consequence”. 10 It
develops the argument by saying for as long as the parties do not reach agreement on
the terms of the full agreement, it may not cancel the variation agreement. According
to Transnet, this “perpetuit y” is contrary to public policy which is informed by
sections 195(1) and 217 of the Constitution. 11 Transnet contends that what it calls the
9 High Court judgment above n 1 at para 55.
10 Id at para 66. The judgment goes on to say:
“That Transnet’s purported three years’ notice given to both Total and Sasol was
unaccompanied by such ‘full agreement’ is undisputed. That being the case, the purported
termination was invalid. It is ineffectual and of no moment.”
11 Section 195(1) of the Constitution provides:
“(1) Public administration must be governed by the democratic values and principles
enshrined in the Constitution, including the following principles:
(a) A high standard of professional ethics must be promoted and maintained.
MADLANGA J
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perpetuity of the variation agreement is at odds with the basic values and principles
governing public administrati on set out in section 195 of the Constitution. On this,
Transnet lays particular emphasis on the section 195 principles of accountability,
transparency and fairness.
[21] It also submits that the variation agreement, which – according to the
High Court’s interpretation – is effectively not terminable, contravenes the provisions
of section 217 of the Constitution. This section decrees that “ [w]hen an organ of
state . . . contracts for goods or services, it must do so in accordance with a system
which is fair, equitable, transparent, competitive and cost-effective”. Transnet submits
that Total and Sasol derive a favourable transportation benefit provided by means of a
finite public resource, a benefit not enjoyed by other oil companies like “BP, Shell and
Caltex”, and that this is at variance with the provisions of section 217 of the
(b) Efficient, economic and effective use of resources must be promoted.
(c) Public administration must be development-oriented.
(d) Services must be provided impartially, fairly, equitably and without bias.
(e) People’s needs must be responded to, and the public must be encouraged to
participate in policy-making.
(f) Public administration must be accountable.
(g) Transparency must be fostered by providing the public with timely, accessible
and accurate information.
(h) Good human -resource management and career -development practices, to
maximise human potential, must be cultivated.
(i) Public administration must be broadly representative of the South African
people, with employment and personnel management practices based on
ability, objectivity, fairness, and the need to redress the imbalances of the past
to achieve broad representation.”
And section 217 provides:
“(1) When an organ of state in the national, provincial or local sphere of government, or
any other institution identified in national legislation, contracts for goods or services,
it must do so in accordance with a system which is fair, equitable, transparent,
competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that
subsection from implementing a procurement policy providing for—
(a) categories of preference in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination.
(3) National legislation must prescribe a framework within which the policy referred to in
subsection (2) must be implemented.”
MADLANGA J
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Constitution. The outcome of the High Court’s interpretation of the variation agreement
is, first, unfair because Total and Sasol’s competitors are not treated equally. Second,
the whole arrangement is inequitable because the preferred, privileged and protected
position of Total and Sasol frustrates any possibility of the empowerment of new
entrants. Third, the agreement – “which perpetuates an apartheid pact with a foreign
entity” – lacks transparency. Fourth, it is not competitive because it does not allow the
participation of other oil producers at the same or better rates. Fifth, it is not
cost-effective because it results in the subsidisation of “profiteering Total and
monopolist Sasol”. The contention continues that o n the High Court’s interpretation,
this must carry on in perpetuity, and that is not tenable.
[22] Transnet concludes that the High Court’s interpretation gives rise to an
agreement that is unenforceable for being contrary to public policy. It submits that there
is a constitutionally compliant construction. It accepts that – insofar as it is founded on
sections 195 and 217 – the public policy argument was “not fully expounded” in the
High Court. It makes the point that – because it did plead that the evergreen nature of
the variation agreement is contrary to public policy – it impliedly pleaded constitutional
values, as public policy is now informed by such values. It matters not, therefore, that
specific reference was not made to the two sections, so contends Transnet.
[23] On the actual interpretation of clause 5 of the variation agreement, Transnet
submits that the words – in clause 5 – “subject to the arrangement that a full agreement
of conveyance for crude oil is being prepared” do not make the right to give notice
subject to the conclusion of a full agreement. The effect of such an interpretation, which
is the interpretation the High Court adopted, is that the parties have the right to terminate
the agreement but, as they do so, they must simultaneously conclude a full agreement
on the same terms as the one they are terminating. That, according to Transnet, cannot
possibly be what clause 5 contemplates. Such an interpretation is not only
contradictory, but it leads to an absurdity. In context, what the quoted words mean
instead is that clause 5 contemplated that the full agreement was in the process of being
prepared at the time of conclusion of the variation agreement.
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[24] On the cause of action defence, Transnet argues before this Court a point it did
not argue before. That point is not even pleaded as part of this defence. It makes the
proposition that an overcharge cannot be recovered by means of a damages claim at all.
A fitting cause of action, so says Transnet, should rather have been one of unjustified
enrichment; the condictio indebiti , to be exact. Incidentally, Sasol has pleaded the
condictio in debiti as an alternative to the contractual claim . For its proposition,
Transnet relies on Affirmative Portfolios,12 a case in which it seems – but for failure to
show that an overpayment was excusable – the Supreme of Court of Appeal would have
upheld a c laim for a refund founded on the condictio indebiti. Transnet submits that
Affirmative Portfolios instances the employment of the condictio indebiti in seeking
refunds for overpayments. Therefore, this is the route Total and Sasol ought to have
followed. It then makes the point that the public in general will benefit from a final
word from this Court as to the correctness of its proposition.
[25] Transnet persists in its other contention, which is that Total and Sasol could sue
for a refund only if they had first cancelled the agreement. Otherwise, as they presently
stand, the claims for a refund do not disclose a cause of action. Transnet argues that
Victoria Falls13 and Mainline Carriers,14 on which the High Court relied in dismissing
the cause of action defence, are distinguishable.
[26] Lastly, Transnet argues that – based on the arguments set out above – the
question whether the notice of termination was issued validly engages both our
constitutional and general jurisdiction. On the other hand, it submits that the point about
lack of a cause of action engages our general jurisdiction.
[27] Total argues that this matter does not engage this Court’s jurisdiction. In support,
it makes the following arguments. There is no constitutional issue , since sections 195
12 Affirmative Portfolios CC v Transnet Ltd t/a Metrorail [2008] ZASCA 127; 2009 (1) SA 196 (SCA).
13 Victoria Falls and Transvaal Power Co Ltd v Consolidated Langlaagte Mines Ltd 1915 AD 1.
14 Mainline Carriers (Pty) Ltd v Jaad Investments CC 1998 (2) SA 468 (C).
MADLANGA J
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and 217 of the Constitution have been raised for the first time before this Court. In any
event, these sections do not assist Transnet. Section 195 informs the interpretation of
substantive provisions of the Constitution . It does not create independent ri ghts or
obligations, and Transnet has not shown how the cance llation clause violates
section 195. Section 217 does not apply because what it prescribes is applicable where
an organ of state procures goods or services. Here Transnet is providing the service.
[28] On the merits, Total argues that in the appeal against Coppin J’s judgment15 the
Supreme Court of Appeal put paid to Transnet’s arguments about the impermissibility
of the tariff charged in accordance with the neutrality principle. Also, there is no
evidence on the question whether the High Court’s interpretation of the cancellation
clause hinders Transnet from promoting efficient, economic and effective use of its
resources, as contemplated by section 195. Nor is there evidence of the extent of such
hindrance, if there be any hindrance. And a violation of section 217 of the Constitution
would, at best, permit a review and setting aside of the variation agreement, which
Transnet has never sought.
[29] Total accepts that the cause of action defence and the point on termination are
points of law. However, it takes the view that both lack reasonable prospects of success
and are, therefore, not arguable. Also, there is nothing about them that makes them of
general public importance. The matter concerns the application of uncontroversial legal
tests, and does not transcend the narrow interests of the parties involved. Additionally,
Total argues that it is not in the interests of justice to grant leave to appeal. This matter
has been ongoing for eight years, offending the principle of finality in litigation and
tying the respondents in unending litigation.
[30] Total argues that this Court should dismiss Transnet’s cause of action defence,
since there is no requirement in our law that a party suing for damages fo r breach of
15 Total South Africa (Pty) Ltd v Transnet SOC Ltd , unreported judgment of the Gauteng High Cou rt,
Johannesburg, Case No 38820/2013 (4 June 2015).
MADLANGA J
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contract must first cancel the contract. 16 Total asks this Court to reject Transnet’s
contention that its claim for a refund ought to have been brought under the
condictio indebiti. There is no authority for the proposition that a claimant sui ng for
the return of overpayment must sue in enrichment. In fact, a claim under an enrichment
action is a claim of last resort, where there are no other remedies available to a claimant
under the law of obligations.
[31] Total contends that Transnet’s argument that the variation agreement permits
cancellation on three years’ notice must be rejected. Transnet’s argument, in essence,
asks this Court to ignore the agreement’s requirement that the right of cancellation is
“subject to the arrangement that a full agreement of conveyance for crude oil is being
prepared and that such agreement will embody the contents of this letter and supersede
this letter”. Ignoring that phrase contravenes the presumption against superfluity when
interpreting contracts , con tinues the argument . Total submits that a proper
interpretation of the variation agreement’s cancellation clause, considering the text,
context and purpose, should lead this Court to the conclusion that Transnet repudiated
the variation agreement by attem pting to terminate it without any agreement for the
conveyance of crude oil being prepared.
[32] Additionally, Total argues that Transnet mischaracterises the condition in the
variation agreement when it argues that the High Court’s interpretation of the
cancellation clause is absurd as it makes terminating a contract subject to another
agreement being concluded on identical terms to the one being terminated. What must
be borne in mind, Total submits, is that the parties agreed to the neutrality principle
being maintained throughout. As such, so long as it continues to embody the neutrality
principle, an agreement that would supersede the variation agreement could
conceivably change the manner in which the neutrality principle is maintained.
16 See for example Victoria Falls above n 13 at 22; Trotman v Edwick 1951 (1) SA 443 (AD) at 449B-C; Holmdene
Brickworks (Pty) Ltd v Roberts Construction Co Ltd 1977 (3) SA 670 (A) at 687B -C; and Mainline Carriers
above n 14 at paras 14, 16, 18, 20-4, 35-8 and 55-60.
MADLANGA J
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[33] Sasol’s arguments on jurisdiction are substantially similar to Total’s.
[34] On the termination defence, Sasol, like Total, argues that an interpretation that
requires that conveyance in accordance with the neutrality principle must always be in
place is informed by the text, context and purpose of the variation agreement. Sasol
illustrates this with the following. Transnet operates the only pipeline connecting Natref
to Durban. When concluding the variation agreement, the parties understood that the
continuation of pipeline services to Natref would always be essential to the operation
of Natref for as long as no alternative existed. The parties, therefore, understood that
this was no ordinary commercial agreement, which could be cancelled with the parties
going their separate ways. Sasol submits that a key purpose of the variation agreement
that Transnet ignores is that it regulates a relationship in terms of which the Natref
shareholders are dependent on Transnet’s pipeline and which is characterised by
long-term reciprocal obligations that the parties undertook to one another. Transnet
also has no right to cancel on reasonable notice since the agreement expressly provides
a period of notice. And Sasol submits that public policy considerations do not bypass
the accepted a pproach to contractual interpretation. There is, in any event, nothing
about the cancellation clause that is contrary to public policy.
[35] On the cause of action defence, Sasol contends that the well-established position
in our law is that an enrichment claim is not sustainable where there is a contractual
basis for the claim. And the respondents’ claims have a clear contractual origin. The
variation agreement imposes an obligation on Transnet, when it increases the crude oil
tariff, not to exceed a prescribed ratio. Transnet breached this obligation by publishing
a higher tariff and Sasol (under protest) paid this amount. Sasol’s main cla im then, is
not that it made payments because of an error or a mistaken belief that the payments
were owing. Instead, it made payments in accordance with Transnet’s official published
tariffs, and its damages therefore arise because Transnet set those off icial tariffs in
breach of its obligations under the variation agreement. Sasol submits that it plainly
has a valid contractual claim. That claim arises from Transnet’s positive
malperformance of its tariff setting obligations under the variation agreeme nt, an
MADLANGA J
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agreement which, according to the Supreme Court of Appeal, remains valid and
binding.
Jurisdiction and leave to appeal
[36] Does this Court have jurisdiction? That question must be answered in relation
to each of the two issues before us. I start with the cause of action defence. As stated
a few times before, Transnet pleaded that a contract must be cancelled in order for a
party to claim a refund for a breach of that contract. It persists in that argument.
Transnet did not suggest that this issue e ngages our constitutional jurisdiction. I need
say no more about that. Transnet invoked our general jurisdiction. In terms of
section 167(3)(b)(ii) of the Constitution the general jurisdiction of the
Constitutional Court is engaged if a “matter raises a n arguable point of law of general
public importance which ought to be considered by that Court”. In Paulsen this Court
held that “[t]he notion that a point of law is arguable entails some degree of merit in the
argument. Although the argument need not, of necessity, be convincing at this stage, it
must have a measure of plausibility.”17
[37] Total and Sasol allege that Transnet charged them a rate that was more than the
weighted average of increase on the conveyance of petrol, diesel and avtur. This was
in breach of the variation agreement, they aver. I will return to the question whether
the overcharge constituted a breach. Total and Sasol seek repayment of the amounts
overcharged as contractual damages. They seek to be placed in the position they would
have been in but for the breach. 18 On first principles, there is nothing the matter with
their claims. Well over a century ago Innes CJ said as much in Victoria Falls.19 The
context in which this was said may be different, but I do not see why the principle must
not find application. All that Total and Sasol are asking for now is to “be placed in the
17 Paulsen v Slip Knot Investments 777 (Pty) Limited [2015] ZACC 5; 2015 (3) SA 479 (CC); 2015 (5) BCLR 509
(CC) at para 21.
18 I deal with the question whether this is a breach shortly. It is not necessary to do so under the question whether
cancellation of the contract is a prerequisite for seeking a refund.
19 Victoria Falls and Transvaal Power above n 13 at para 22.
MADLANGA J
17
position [they] would have occupied had the contract been performed, so far as [could]
be done by the payment of money, and without undue hardship to [Transnet]”.20
[38] There is no reason whatsoever for the contract first to be cancelled for Total and
Sasol to be able to claim damages. Authority for the general principle that a party can
claim specific performance together with damages for defective or late perfor mance is
to be found in cases like Silverton Estates ,21 Sunjeevi,22 Allers23 and
Dominion Earthworks (Pty) Ltd .24 It is worth noting that the judgment in
Silverton Estates was penned by Innes CJ. So, his later judgment in Victoria Falls is
unlikely to have been intended to conflict with this general principle.25 I might add that
opting to stand by the contract and claiming specific performance together with
damages are not inconsistent remedies which – in accordance with the principle set out
in Gouws – are impermissible. Beyers JA held in Gouws:
“I am not aware of any general proposition that a plaintiff who has two or more
remedies at [her or] his disposal must elect at a given point of time which of them
[she or] he intends to pursue, and that, having elected one, [she or] he is taken to have
abandoned all others. Such a situation might well arise where the choice lies between
two inconsistent remedies and the plaintiff commits [her- or] himself unequivocally to
the one or other of them.”26
20 Id. See also MTN Service Provider (Pty) Ltd v Belet Industries CC t/a Belet Cellular [2021] ZASCA 7; 2021
JOL 49370 (SCA) at para 46.
21 Silverton Estates Co v Bellevue Syndicate 1904 TS 462 at 470.
22 Sunjeevi v Wood 1909 NLR 76 at 78.
23 Allers v Rautenbach 1949 (4) SA 226 (O) at 232.
24 Dominion Earthworks (Pty) Ltd v M J Greef Electrical Contractors (Pty) Ltd 1970 (1) SA 228 (A) at
234E-235C.
25 See also De Wet and Van Wyk Kontraktereg en Handelsreg 5 ed (LexisNexis, Durban 1992) v ol 1 at 167 -8;
Kerr The Principles of the Law of Contract 6 ed (LexisNexis, Durban 2004) at 697; and Christie The Law of
Contract in South Africa 7 ed (LexisNexis, Durban 2011) at 626-7.
26 Montesse Township and Investment Corporation (Pty) Ltd v Gouws N.O. 1965 (4) SA 373 (A) at 380H.
MADLANGA J
18
[39] Also worth noting is the fact that cancellation cannot be had merely out of a wish
to have it. A party may cancel on the basis of a breach, if the breach is material or, as
Kerr says, major. Kerr says:
“Parties to a contract are bound together in a legal relationship. Termination of the
legal relationship is clearly an important step. Because it is so important it may not be
taken if the breach is a minor one only. . . . [E]very major breach entitles the aggrieved
party to terminate the relationship by cancelling the contract.”27
Quoting Swartz and Son (Pty) Ltd he continues:28
“A breach is a major one if it ‘goes to the root of the contract’, or affects a ‘vital part’
of the obligations or means that there is no ‘substantial performance’. It amounts to
saying that the breach must be so serious that it cannot reasonably be expected of the
other party that [she or] he should continue with the contract and content [herself or]
himself with an eventual claim for damages.”29
Where, on this basis, the aggrieved party is not entitled to cancel the contract, the law
not only permits but confines the aggrieved party to a claim for damages to compensate
it for the delinquent party’s malperformance.
[40] Thus, it is mistaken of Transnet to suggest that cancellation of the variation
agreement would have been available at will to Total and Sasol in order for them to then
claim the refund.
[41] In sum, the point is not arguable.
27 Kerr above n 25 at 602. Also see Christie above n 25 at 608 where the following appears:
“[I]t has been universally accepted that a sufficiently serious breach of a sufficiently important
term will justify cancellation without the necessity of proving an intention to repudiate . . . .”
28 Kerr id at 602-3.
29 Swartz and Son (Pty) Ltd v Wolmaransstad Town Council 1960 (2) SA 1 (T) at 4F-G.
MADLANGA J
19
[42] What of Transnet’s new argument raised for the first time before us that amounts
overcharged cannot be recovered by a claim for damages at all? May we entertain it?
[43] The only authority that Transnet relied on in support of this argument is
Affirmative Portfolios. Its argument amounted to no more than that in that case the
condictio indebiti was employed. As Total argued, it does not follow that no other cause
of action is competent. There may be more than one possible cause of action in respect
of the same set of facts. That much is trite. Thus, there is a missing link in Transnet’s
reasoning. In oral argument, Sasol was engaged in a debate that raised the following
issues, perhaps not in as much detail as I set them out here; but the substance is the
same. An argument may be made that i n order to claim contractua l damages, an
aggrieved party must establish that the other has been guilty of a breach of the contract.
It may then be argued that the fact that a contract provides that the price for an ongoing
supply of goods or services will be X amount does not mean that the creditor commits
a breach of contract if it sends invoices to the debtor for an amount in excess of X
amount. Conceivably an insistence by a creditor in charging more than the agreed price,
coupled with a refusal to supply except at the higher pr ice, could be a repudiation
justifying cancellation of the contract.30 But unless the repudiation is accepted (leading
to cancellation of the contract), repudiation is, as has been said in the cases, a “thing
writ in water”. 31 The other party can ignore it and insist on compliance with the
contract.
[44] In countering this, Sasol put up a plausible argument, and I put it no higher. It
submitted that this is not merely about an overcharge. It is not just a case of wrong
invoicing. The overcharge arises from an antecedent breach; the determination of a new
tariff. The “wrong” invoicing is pursuant to that determination. That determination is
a breach, as it is at variance with the agreement on how tariffs would be increased.
30 See Nash v Golden Dumps (Pty) Ltd 1985 (3) SA 1 (A) at 22D-E.
31 See Howard v Pickford Tool Co Ltd [1951] 1 KB 417 (CA) at 421. See also Culverwell v Brown 1990 (1) SA
7 (A) at 28D-E; Sandown Travel (Pty) Ltd v Cricket South Africa 2013 (2) SA 502 (GSJ) at para 52; and Comwezi
Security Services (Pty) Ltd v Cape Empowerment Trust Ltd [2014] ZASCA 22; [2016] JOL 35526 (SCA) at para 1.
MADLANGA J
20
Setting tariffs in a particular m anner was a contractual obligation that rested on
Transnet. I cannot make light of this argument. Transnet’s performance was not only
about the conveyance of crude oil from Durban to Natref. It was also about periodically
increasing tariffs in the manne r stipulated in the variation agreement. It may well be
mistaken, therefore, to view this as a case of a mere overcharge.
[45] Indeed, as one observes from the pleadings, the basis for the claims for a refund
is this. First, for 2008 Transnet breached the variation agreement by increasing the tariff
for the conveyance of crude oil by 10.25%, whilst the increase in respect of petrol, diesel
and avtur was less than 1%. Second, for 2011 the respective increases were about 107%
and 80%. According to Total and Sasol, that breach continues because even on those
occasions when increases were based on the stipulated weighted average, the 2008 and
2011 breaches increased the base levels on which the succeeding years’ “neutral”
increases were calculated. It seems to me, therefore, that authorities, if any, on the mere
invoicing of a wrong price may well not be on point.
[46] An argument may be made that any loss which Total and Sasol suffered by
paying the increased amounts was caused not by the fact that the increased a mounts
were wrongly charged, but by their decision to pay the increased amounts. A possible
counter is that they did not have much choice. As they say, they paid the extra amounts
under protest. That is understandable. It does not seem that they had th e luxury of an
option to litigate and seek specific performance in accordance with the variation
agreement. Had they not paid, they faced the prospect of Transnet halting the
conveyance of crude oil with disastrous consequences for refining operations at Natref.
It is so that there are judgments that have held that the making of payment under protest
can be a precursor to a condictio indebiti.32 But if – as Sasol argued – there was, in fact,
a breach, would this inexorably wipe out any possibility of a cl aim for contractual
damages?
32 Commissioner for Inland Revenue v First National Industrial Bank 1990 (3) SA 641 (A) at 656C and
Kernsig v Absa [2015] ZAWCHC 122 at paras 51-2.
MADLANGA J
21
[47] I raise all these arguments tentatively and not to decide them one way or the
other. I do so to demonstrate that there are, at this stage, imponderables on an issue that
was raised for the first time in this Court. We did no t get much on it by way of
authorities from the parties. And had the matter been raised before the High Court, we
would have benefitted from a judgment of that Court. We should be wary not readily
to entertain issues that are raised for the first time be fore this Court. And this is
especially so in the case of matters which, as this one does, concern the common law.
Cameron J had this to say in Tiekiedraai:
“A considerable road hump in Tiekiedraai’s way is that this Court is wary of deciding
issues as a court of first and last instance. This is especially so in questions of common
law doctrine, where this Court often solicits the views and expertise of the
Supreme Court of Appeal. . . . Related is the respect this Court pays to the views of
the High Court and of the Supreme Court of Appeal. Our precedents say that this Court
functions better when it is assisted by a well-reasoned judgment (or judgments) on the
point in issue.”33
[48] For these reasons, I conclude that – although the issue is arguable – it is not one
“which ought to be considered by [this] Court”. 34 It is simply not in the interests of
justice for us to consider the issue. In Paulsen we held that the words “which ought to
be considered by that Court” are about the interests of justice facto r.35 We said, “If –
for whatever reason – it is not in the interests of justice for this Court to entertain what
is otherwise an arguable point of law of general public importance, then that point is
not one that ‘ought to be considered by [this] Court’.”36
[49] So, I leave the question open.
33 Tiekiedraai Eiendomme (Pty) Limited v Shell South Africa Marketing (Pty) Limited [2019] ZACC 14; 2019 (7)
(CC); 2019 (7) BCLR 850 (CC) at paras 19-20.
34 Section 167(3)(b)(ii) of the Constitution.
35 Paulsen above n 17 at para 30.
36 Id.
MADLANGA J
22
[50] I next consider whether the question of the validity of the notice of termination
does engage our jurisdiction. To recapitulate, Total and Sasol argue that clause 5 of the
variation agreement, which allows parties to “dis regard” (for which, plainly, we must
read “terminate”) the agreement, is subject to a condition that the parties are preparing
a “full agreement” embodying the contents of the variation agreement; there cannot be
cancellation without preparation of a full agreement. Transnet, on the other hand,
argues that the clause requires that a three-year notice of termination be given, but that
the variation agreement and, therefore, this termination clause were meant to be
superseded by a “full agreement” concluded by the parties. In terms of the variation
agreement this full agreement had to embody the contents of the variation agreement.
Of course, the full agreement was never concluded. Thus, argues Transnet, as the
provision to terminate on three-years’ notice is extant, it is entitled to terminate on such
notice and has validly terminated the agreement.
[51] Without doubt, the interpretation of the termination clause is a point of law and,
as I will show later, Transnet’s argument on it is plausible. Put differently, the argument
has reasonable prospects of success. That makes it arguable. 37 The next question is
whether the point is of general public importance.
[52] This Court in Paulsen held that for a point to be of general public importance it
need not implicate the interests of society as a whole but “it must transcend the narrow
interests of the litigants and implicate the interest of a significant part of the general
public”.38 Does the question at hand meet that test? I think the answer lies in the
consideration of a number of factors. These are they. Transnet is a public entity
administering an economically strategic and crucial piece of public infrastructure. As
Transnet avers, the infrastructure is finite. If the correct interpretation of clause 5 is that
the variation agreement cannot be terminated, that means this infrastructure will be
locked into this perpetual contract on terms which, according to Transnet, are
37 Paulsen above n 17 at paras 25-6.
38 Id at para 26.
MADLANGA J
23
unfavourable. And this is in circumstances where one of the objects of the
Petroleum Pipelines Act is the promotion of equitable access to pipelines.39 I must not
be understood to be pronouncing on whether the terms are, indeed, unfavourable to
Transnet. It is well established that jurisdiction is determined not on the substantive
merits but on the pleadings. 40 Crucially and as show n presently, on Tota l’s
interpretation of clause 5, the variation agreement is evergreen. Total argued that for as
long as the circumstances that informed the inclusion of the neutrality principle in
the 1967 and variation agreements exist, the present agreement cannot be ca ncelled.
The main circumstance worth mentioning is the fact that Natref is sited inland and it
sources its crude oil from the coast (Durban, to be exact), whereas its competitors are
located at the coast. It was that locational difference that informed t he introduction of
the neutrality principle. That will never change. Therefore, on Total’s interpretation of
clause 5, the variation agreement is, indeed, evergreen. And that this is Total’s position
was put beyond question during a fairly lengthy debate in oral argument.
[53] So, on this argument, an economically strategic, crucial and finite piece of public
infrastructure is locked into a contractual arrangement that may well be perpetual. A
combination of this and the couple of other factors referred to in the preceding
paragraph certainly does make this a matter of general public importance. The public
interest is implicated. Thus, the matter evidently transcends the narrow interests of the
litigants. And that calls for an interpretation of clause 5.
[54] Due to the particular public interest that the matter implicates and the fact that
Transnet’s interpretation bears reasonable prospects of success, the matter ought to be
considered by this Court. Thus, leave to appeal is granted for this Court to determ ine
only the question whether the notice to terminate the variation agreement was issued
validly. This question requires us to interpret clause 5 of the variation agreement.
39 Section 2(d).
40 Gcaba v Minister of Safety and Security [2009] ZACC 26; 2010 (1) SA 238 (CC); 2010 (1) BCLR 35 (CC) at
para 75; Chirwa v Transnet Limited [2007] ZACC 23; 2008 (4) SA 367 (CC); 2008 (3) BCLR 251 (CC) at
paras 155 and 169 ; and Fraser v ABSA National Bank Limited (National Director of Public Prosecutions as
Amicus Curiae) [2006] ZACC 24; 2007 (3) SA 484 (CC); 2007 (3) BCLR 219 (CC) at para 40.
MADLANGA J
24
Termination
[55] Disagreement between the parties arises from the phrase in clause 5 “subject to
the arrangement that a full agreement of conveyance for crude oil is being prepared and
that such agreement will embody the contents of this letter and supersede this letter”.
(Emphasis added.) Total and Sasol are not in agreement on this. Sasol argued that the
term “subject to” reflects a condition applicable to any party intending to terminate the
variation agreement. Largely, 41 Sasol’s interpretation coincides with that of the
High Court. Sasol does not contend that there is a perpetual o bligation on Transnet to
provide crude oil conveyance in accordance with the variation agreement. On
perpetuity, the High Court held as much. It also held that all that is required of a party
wishing to terminate the agreement is to show that a new, “ful l” agreement is being
prepared. The High Court put it thus:
“That the variation agreement is not in perpetuity appears from the terms of the
agreement that specifically spell out on what basis the terms of the variation agreement
may be disregarded. So long as a full agreement of conveyance for crude oil is being
prepared and such agreement will embody how the tariff is set out, either party is
entitled to give the other party three years’ notice of its intention to disregard the terms
of the variation agreement.”42 (Emphasis added.)
[56] From this, it is clear that there need not be a finalised draft “full” agreement. It
is enough if it is being prepared.
[57] The High Court continues and says something which, as Transnet correctly
observed, contradicts this. It says “[a]bsent the ‘full agreement’ of conveyance of crude
41 I say “largely” because the High Court’s interpretation goes further, and I do not understand Sasol to share
everything that the High Court held.
42 High Court judgment above n 1 at para 66.
MADLANGA J
25
oil, any attempt to cancel the [variation] agreement is ineffectual and of no
consequence”.43 It continues:
“That Transnet’s purported three -year notice given to both Total and Sasol was
unaccompanied by such ‘full agreement’ is undisputed. That being the case, the
purported termination was invalid. It is ineffectual and of no moment.”44
[58] Now the judgment seems to require more than that a full agreement should be in
the course of preparation. The notice of termination must be accompanied by a “full”
agreement.
[59] Sasol embraces that part of the judgment that insists on a full agreement. It says
its idea of a full agreement that “ is being prepared ” is a draft agreement prepared by
Transnet “embod[ying] the contents of [the variation agreement]”, and which Transnet
must then hand over to Total and Sasol before giving notice to terminate the agreement.
According to Sasol, if this condition is satisfied, it is only then that any party to the
agreement may give the three -year notice of termination. It matters not that the other
parties will not have made an input to the preparation of the agreement, let alone agreed
to it. As soon as the unilaterally prepared document is in existence and has been gi ven
to Total and Sasol, the entitlement to terminate is triggered.
[60] Although writing in the context of statutory interpretation, Majiedt AJ said, in
Cool Ideas , “[a] fundamental tenet of statutory interpretation is that the words in a
statute must be given their ordinary grammatical meaning, unless to do so would result
in an absurdity”45 but that there are three important interrelated riders. These include
that “statutory provisions should always be interpreted purposively”. 46 Likewise, in
Endumeni Wallis JA said:
43 Id.
44 Id.
45 Cool Ideas 1186 CC v Hubbard [2014] ZACC 16; 2014 (4) SA 474 (CC); 2014 (8) BCLR 869 (CC) at para 28.
46 Id.
MADLANGA J
26
“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.”47
[61] Here is the outcome that Sasol’s interpretation leads to. If desirous to terminate
the agreement, all that Transnet need do is to prepare a “full” agreement and hand it
over to Total and Sasol. It is only if the two entities have this draft agreement that a
notice of termination may be issued. The two documents (the draft agreement and the
notice of termination) may even be handed over simultaneously. At a purposive level,
it is difficult to underst and this submission. Its effect is this. Before delivery by
Transnet of a new full draft agreement to Total and Sasol, the parties cannot give the
three-year notice to cancel. But as soon as Transnet delivers this new draft agreement
and without more, t he right to terminate is triggered. One may ask rhetorically: in
practical terms, what is the difference between these two scenarios, regard being had to
the fact that in both there is not a concluded agreement? The “full” agreement may or
may not be acc eptable to Total and Sasol. If not acceptable, it will never become an
agreement. Mere “preparation” and delivery of a full draft agreement to the other
parties does the trick.
[62] Sasol submitted that the notice clause gave the parties three years to try to come
to terms on the full draft agreement. If they did not come to terms, the notice of
termination would take effect at the end of the three -year period. If they did come to
terms, the notice of termination would fall away, because the variation agreement would
be superseded by the full agreement. Sasol accepted that Transnet could permissibly
include, in the full draft agreement, the three -year notice provision contained in t he
variation agreement. This would mean that, upon conclusion of the full agreement,
47 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593 (SCA) at
para 18.
MADLANGA J
27
Transnet could again give a three-year notice of termination, this time in terms of the
full agreement rather than the variation agreement.
[63] Transnet submitted, correctly, that this interpretation is not only contradictory, it
leads to an absurdity; a glaring one at that, I might add. Endumeni held:
“[W]here the context makes it plain that adhering to the meaning suggested by
apparently plain language would lead to glari ng absurdity, the court will ascribe a
meaning to the language that avoids the absurdity. This is said to involve a departure
from the plain meaning of the words used. More accurately it is either a restriction or
extension of the language used by the adoption of a narrow or broad meaning of the
words, the selection of a less immediately apparent meaning or sometimes the
correction of an apparent error in the language in order to avoid the identified
absurdity.”48
[64] Total argues that, properly construed, the variation agreement provides that so
long as the circumstances that necessitated the introduction of the neutrality principle
continue to exist, the variation agreement cannot be terminated. What this means is that
as long as Natref is located inland and sources crude oil from the coast, the variation
agreement cannot be terminated. In essence then, Total contends for a situation where
Transnet is locked into this cont ractual relationship in perpetuity or, at the very least,
beyond the foreseeable future.
[65] This interpretation is not viable. It strikes a line right across the provision for a
three-year notice period to terminate. If what is of paramount importance is a change
in the circumstances that necessitated the introduction of the neutrality principle, it
passes more than strange that the agreement is not direct on this. It would have been a
matter of relative ease for the parties to stipulate that, unless there is a change in the
circumstances that gave rise to the need for the neutrality principle, notice of
termination cannot not be given. What the agreement does instead is clearly to make
48 Id at para 25. See also Cool Ideas above n 46 at para 28.
MADLANGA J
28
provision for the parties to terminate on three years’ notice. But To tal relegates that
into nothingness.
[66] In an attempt to avoid this, Total submitted that the three -year notice period
allows the parties to “iron out” the terms of the agreement, but that if after three years
they cannot agree on the terms, nothing happens. Furthermore, Total – unlike Sasol –
did not accept that the full agreement, if concluded, could itself contain a clause
permitting termination on three years’ notice.
[67] The upshot of Total’s argument is that the parties cannot terminate the variation
agreement notwithstanding the three -year notice. If there is no full agreement to
supersede the variation agreement, the three -year notice period will have served no
purpose, except as some sort of obligatory negotiation period. If the variation
agreement is superseded by a concluded full agreement, the latter agreement itself
cannot permissibly be one capable of termination on three years’ notice. Not only is
this interpretation glaringly absurd, it renders the dominant part of clause 5 unnecessary
and irre levant. The Appellate Division in Golden Dumps , albeit in the context of
interpreting legislation, affirmed the general rule of construction that, as far as possible,
meaning is to be given to every word and that no word, phrase or sentence should easily
be found to be superfluous. 49 As I say, Total’s interpretation is as good as not giving
meaning to the words that provide for a three-year notice.
[68] A viable interpretation is one that factors into the contextual setting the history
of the neutrality princi ple. The original agreement was concluded in 1967. That
agreement was silent both on its duration and on the giving of a notice of termination.
If it was not intended to be a contract that would exist in perpetuity, it would be
terminable on reasonable notice. In Putco Smalberger AJA said “[w]here an agreement
49 Commissioner for Inland Revenue v Golden Dumps (Pty) Ltd 1993 (4) SA 110 (A) at 116F-117A.
MADLANGA J
29
is silent as to its duration, it is terminable on reasonable notice in the absence of a
conclusion that it was intended to continue indefinitely”.50
[69] In Amalgamated Beverage Industries Streicher JA held that “[i]n my view, the
Court a quo correctly decided that the contract was terminable on reasonable notice.
Whether it was is a matter of construction” .51 Likewise, in Plaaskem52 Hancke AJA –
relying on Putco,53 Amalgamated Beverage Industries54 and Trident Sales55 – came to
the same conclusion.56 Trident Sales says this is a question of interpretation; there is no
presumption one way or the other. Plaaskem does point to some academic discontent
with the lack of a bias in favour of the right to terminate on reasonable notice.57 It says
“concern has been raised regarding the fact that parties could be bound in perpetuity”.58
I need not get into that apparent legal controversy. Nor need I engage in an exercise of
construction as envisaged in Putco, Amalgamated Beverage Industries , Plaaskem and
Trio Engineered Products59 on whether the 1967 agreement was to exist in perpetuity
or was terminable on reasonable notice. Not when that agreement was varied by
the 1991 variation agreement, the latter being what is litigated before us.
50 Putco Ltd v TV & Radio Guarantee Co (Pty) Ltd 1985 (4) SA 809 (A) at 827I.
51 Amalgamated Beverage Industries Ltd v Rond Vista Wholesalers 2004 (1) SA 538 (SCA); [2003] 4 All SA 95
(SCA) at 543H.
52 Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd 2014 (5) SA 287 (SCA).
53 Putco above n 50
54 Amalgamated Beverage Industries above n 51.
55 Trident Sales (Pty) Ltd v AH Pillman & Son (Pty) Ltd 1984 (1) SA 433 (W).
56 Plaaskem above n 52 at paras 11-5.
57 Id at para 12. I n the same paragraph i t quotes AR Carnegie in “Terminability of Contracts of Unspecified
Duration” (1969) 85 LQR 392 at 411–2 who says:
“By holding the parties bound forever in such circumstances, the rule would impose on the party
to whom the contract becomes disadvantageous an excessively severe penalty for the
misdemeanour of careless craftsmanship. Moreover, considerations of commercial
convenience have been predominant a mong the principles informing the development of the
law of contract; and as McNair J has in effect argued, commercial prudence is much more likely
to indicate that a contract should be determinable than that it should endure perpetually.”
58 Plaaskem id.
59 Trio Engineered Products Inc v Pilot Crushtec International (Pty) Ltd [2018] ZAGPJHC 447; 2019 (3) SA 580
(GJ).
MADLANGA J
30
[70] Suffice it to say, if the 1967 agreement was terminable on reasonable notice, in
the beginning the notice period would probably have been quite lengthy; probably much
longer than the contentious three years stipulated in clause 5 of the variation agreement.
I will not venture a view on how much longer, as that is a question that turns on the
circumstances of each case, and one determinable upon an interpretation of the contract
concerned.60 But the notice period would have been considerably longer because if the
Natref shareholders were not going to have access to the then Administration’s pipeline,
they might have needed to construct one of their own, and there might have been
questions of recouping the cost of their investment, and so forth. Indeed, Amalgamated
Beverage Industries says at least one of the purposes of giving a notice of termination
is to afford the other party “sufficient time in which reasonably to manage its own
affairs”.61
[71] In 1991 – when the variation agreement was concluded – the context was
different. The 1967 agreement had been in place for 24 years. Circumstances could
not possibly have been the same as those that prevailed in 1967 relative to the nature of
the necessary notice before termination ; that is, if the 1967 agreement was terminable
on notice. Possibly – if not probably – as at 1991, Total and Sasol had not only recouped
their cost of investment, but had even realised a return on their investment. To the
extent that I may be criticised on the basis that this is speculative, the reality is that in
1991 circumstances simply could not have been the same as in 1967. That is the context
in which we must construe clause 5 of the variation agreement. That is t he context in
which we must assess Total’s argument, the effect of which is to render the variation
agreement not terminable. In that context, it does make sense that – after 24 years of
its existence – the parties decided that the neutrality principle sh ould be terminable on
three years’ notice. This must have been on the basis that they considered the three-year
notice period to be reasonable. And the right expressed in clause 5 to give a three-year
notice to disregard the agreement means a three-year notice of termination.
60 See Amalgamated Beverage Industries above n 51 at para 17.
61 Id at para 18.
MADLANGA J
31
[72] I have already demonstrated that the conditionalities suggested by Total and
Sasol are untenable. So, what qualification there may be, if any, to the entitlement to
give notice of termination must flow from the words in clause 5 : “subject to the
arrangement that a full agreement of conveyance for crude oil is being prepared and that
such agreement will embody the contents of this letter and supersede this letter”. What
does this mean?
[73] It seems to me that the contracting parties were not adding a suspensive condition
to the cancellation clause. They were merely recording that at the time of concluding
the variation agreement a full agreement was being prepared and that – upon
conclusion – it would automatically replace the variation agreement. The words
“subject to” appeared in a two -page letter from a business executive, not in a detailed
contract drafted by lawyers. There is no reason to assume that the “subject to”
formulation was used in a technical legal sense as introducing a suspensive condition.
[74] This is buttressed by the second of the two components of the variation
agreement, the second letter penned by Total and Sasol. In response to the first letter
penned by Mr Crowley of Petronet,62 which contained the actual neutrality principle,
Total and Sasol wrote that “[their] understanding is that these conditions [for which we
must obviously read “terms”] will now be incorporated in an encompassing agreement
between [them]selves and Petronet” . This is consistent with the phrase “a full
agreement is being prepared”, used in the phrase that opens with “subject to”. Of
course, a full agreement was never concluded. The contractual relationship between
the parties continues to be governed by the variation agreement. That means the
provision in clause 5 that entitles the parties to terminate on three-years’ notice remains
operative. Therefore, Transnet was perfectly entitled to invoke it and give the requisite
three-year notice of termination.
62 As I said, Petronet was a division of Transnet.
MADLANGA J
32
[75] This interpretation avoids much of the difficulties the interpretations proffered
by Total and Sasol encounter.
[76] Endumeni held:
“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.”63
[77] The factors referred to are those set out in the earlier quotation from this
judgment, namely 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. The
interpretations advocated by Total and Sasol are impractical, insensible and
unbusinesslike. They simply do not make the cut.
[78] That leads to the conclusion that the notice of termination was issued validly.
Since it was issued in September 2017, the variation a greement came to an end in
September 2020. That, however, does not in itself mean that Transnet no longer has an
obligation to convey crude oil to Natref, only that the conveyance is no longer regulated
by contract. There is nothing in the papers to suggest that Transnet wishes to terminate
the use of the pipeline by Total and Sasol. The main point of contention between the
parties has been whether the tariff for use of the pipeline should continue to be based
on the neutrality principle. Transnet’s lic ence to operate the pipeline is not before us,
but section 20(1)(f) of the Petroleum Pipelines Act provides that a petroleum pipeline
may be licensed for either crude oil or petroleum products, or both, “as long as sufficient
pipeline capacity is available for crude oil to enable the uninterrupted operation of the
crude oil refinery located at Sasolburg, to operate at its normal operating capacity at the
commencement of this Act and for so long as that refinery continues as a going
63 Endumeni above n 47 at para 18.
MADLANGA J
33
concern”. Public law remedies may well be available to Total and Sasol if Transnet or
Nersa, when making decisions regarding access to, and the terms for use of, the pipeline,
fail to observe the legal constraints on the exercise of their powers.
Costs
[79] The appeal succeeds only t o the extent of the questions whether the variation
agreement was terminable and, if it was, whether it was terminated validly. While
Transnet enjoys this success, Total and Sasol have succeeded on the cause of action
defence. It seems fair that in this Court each party must pay its costs. That must be the
case in the High Court as well. That means the High Court’s costs order must be
set aside.
Order
[80] The following order is made:
1. Leave to appeal is granted only in respect of the questions whether the
variation agreement was terminable and, if it was, whether it was
terminated validly.
2. The appeal is allowed and, as a consequence, it is declared that the
variation agreement was terminable, was terminated validly and came to
an end on 13 September 2020.
3. The order of the High Court of South Africa, Gauteng Local Division,
Johannesburg, is set aside insofar as it relates to the questions referred to
in paragraph 1 and to costs.
4. Each party must pay its own costs in this Court and in the High Court.
For the Applicant:
For the First Respondent:
For the Second Respondent:
J J Gauntlett SC QC, K Pillay SC,
F B Pelser, Y S Ntloko and N Nyembe
instructed by Webber Wentzel
A E Bham SC, J Babamia SC and
K Hofmeyr SC instructed by Norton
Rose Fulbright South Africa
Incorporated
T Ngcukaitobi SC , D Turner and
M Mbikiwa instructed by Mchunu
Attorneys