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[2011] ZASCA 158
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Ashcor Secunda (Pty) Ltd v Sasol Synthetic Fuels (Pty) Ltd (624/10) [2011] ZASCA 158 (28 September 2011)
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 624/10
In
the matter between:
ASHCOR
SECUNDA (PTY) LTD
…......................................................
Appellant
and
SASOL
SYNTHETIC FUELS (PTY) LTD
….....................................
Respondent
Neutral citation:
Ashcor Secunda (Pty) Ltd v Sasol Synthetic
Fuels (Pty) Ltd
(624/10)
[2011] ZASCA 158
(28 September 2011)
Bench:
BRAND, PONNAN, CACHALIA, SHONGWE JJA and PLASKET AJA
Heard: 1 SEPTEMBER 2011
Delivered: 28 SEPTEMBER 2011
Corrected:
Summary: Contract – interpretation of - one party's
repudiation may entitle the other party to withhold performance -
distinction
between implied and tacit terms – no room for
importing implied or tacit terms in conflict with terms that the
parties have
expressly agreed upon.
______________________________________________________________________
ORDER
______________________________________________________________________
On
appeal from
:
South Gauteng High Court
(Johannesburg) (Claasen J sitting as court of first instance).
The appeal
is dismissed with costs, such costs to include those consequent upon
the employment of two counsel.
______________________________________________________________________
JUDGMENT
___________________________________________________________________
PONNAN
JA (BRAND, CACHALIA, SHONGWE JJA and PLASKET AJA concurring):
[1] Fly-ash is a pozzolan that reacts with water and lime to form a
cementitious material. It enhances the properties of mortars
and
concretes resulting in significant improvements to the mix, strength
and durability of the end product. The respondent, Sasol
Synthetic
Fuels (Pty) Ltd (Sasol), manufactures synthetic fuel from coal. As
part of its synthetic fuel production process Sasol
operates a series
of coal-fired boilers in Secunda to generate its own electricity. A
by-product of that coal burning process is
fly-ash. To prevent its
emission into the atmosphere, Sasol initially caused the fly-ash to
pass over a series of electro-magnetically
charged plates. Those
plates were vibrated periodically causing the fly-ash to fall into
fields of hoppers — massive bins.
Those bins converged into
four-sided funnels, where the ash accumulated. From there it was
extracted by a system known as the hydro-vac
system - water was used
to create a vacuum to suction the ash out of the hoppers. The ash,
once extracted, was carried mixed with
the water to waste sites. But
that proved to be an expensive and environmentally hazardous process.
And so Sasol chose in addition
to implement an alternative fly-ash
extraction system known as the Fly-Ash Plant (FAP). It consisted of a
blower system and two
nitrogen systems connected in the fields for
three of the boilers. That system enabled the fly-ash to be extracted
and stored in
silos for commercial exploitation.
[2] The appellant, Ashcor Secunda (Pty) Ltd (Ashcor) sought to
commercially exploit the fly-ash extracted via the FAP. To that
end
it concluded a written agreement with Sasol, which, to the extent
here relevant, provided:
'1.
LEASE PERIOD
This lease shall take effect 30 days after the Fly Ash
Recover Plant is repaired and made operational. The lease period
shall continue
for a period of 4 (four) years and 11 (eleven) months.
. . .
2. RENTAL
2.1 ASHCOR shall pay SASOL rental in the amount of R20
000 (VAT excluded) per month. VAT is to be paid by ASHCOR. Rental
shall be
inclusive of water, electricity and nitrogen. SASOL reserves
the right to review the supply of said commodities in the event of
extension of ASHCOR's activities on the premises. SASOL furthermore
reserves the right to review the monthly rental amount in the
event
that it costs SASOL in excess of R150 000 to make the Fly Ash Plant
operational.
. . .
3. USE OF PREMISES
3.1 ASHCOR shall use the premises only for the operation
of a Fly Ash Plant and for the purpose for which it was designed and
for
no other purpose, without the written consent of SASOL. Operation
of the PREMISES shall be conducted in strict accordance with SASOL's
requirements. The Fly Ash Plant is coupled to Boilers 7, 8 and 9 and
fly ash shall only b[e] drawn from these three boilers.
. . .
5. GUARANTEES
5.1 SASOL does not guarantee that the PREMISES are
suitable for the use indicated in clause 3.1 and shall not be
responsible to
ensure that said PREMISES become suitable for the use
indicated in said clause.
5.2 SASOL does not guarantee either the quantity or
quality of ash produced by the Fly Ash Plant and shall not be liable
in the
event of said plant not rendering either the quantity or
quality of ash expected by ASHCOR.
. . .
5.5 SASOL shall grant ASHCOR the period from the
commencement date of this AGREEMENT until 28/02/1998 to establish the
economic
viability of the Fly Ash Plant, with regards to the quantity
and quality of fly ash delivered by it. Economical viability is
dependent
on the recovery of a month average of 8 500 tons of fly ash
which conforms to the EN450 and ASTM standards.
5.6 ASHCOR shall on 28/02/1998 inform SASOL, in writing,
whether it intends to proceed with; or cancel the AGREEMENT, in which
event
a 3 (three) month's written notice must be given to SASOL.'
[3] Ashcor caused summons to be issued against Sasol for damages in
the sum of R303 903 000 (alternatively R179 957 000) together
with
interest and costs. In it Ashcor contended that Sasol had breached
the agreement in that it had failed to repair and make
the FAP
operational. In the alternative Ashcor alleged that as a result of an
error common to the parties, both parties had signed
the written
agreement in the bona fide but mistaken belief that it recorded the
true terms of the agreement between them. Ashcor
accordingly sought
an order rectifying the agreement.
[4] The matter proceeded to trial before C J Claasen J in the South
Gauteng High Court. At the commencement of the trial a separation
order in terms of Uniform Rule 33(4) issued by agreement between the
parties. It required the resolution of all issues relating
to the
contractual terms and the liability and rights flowing there
from
― whatever that might mean
. All other issues, including
the question of damages, were postponed
sine die
. That
notwithstanding, the trial, which commenced during April 2005, ran
for no less than 18 court days. On 22 January 2010 and
at the close
of Ashcor's case the learned Judge absolved Sasol from the instance
with costs.
[5] The matter is one of interpretation. A useful starting point is
the following trite proposition: where the language of a contract
is
clear and unambiguous the court must give effect to the intention of
the parties as expressed in the contract however harsh
or
unreasonable that may appear to be (see
Scottish Union &
National Insurance Company Ltd v Native Recruiting Corporation Ltd
1934 AD 458
at 465). According to the golden rule of interpretation
the language in a document is to be given its grammatical and
ordinary
meaning unless this would result in some absurdity or
repugnancy or inconsistency with the rest of the instrument (See
Coopers and Lybrand & others v Bryant
[1995] ZASCA 64
;
1995 (3) SA 761
(A)
at 767). According to Greenberg JA in
Worman v Hughes & others
1948 (3) SA 495
(A) at 505
‘
It must be borne in mind that
in an action on a contract, the rule of interpretation is to
ascertain, not what the parties’
intention was, but what the
language used in the contract means, i.e what their intention was as
expressed in the contract. As
was said by Solomon J in
van
Pletsen v Henning
(1913,
A.D., p 82 at p. 89): “The intention of the parties must be
gathered from their language, not from what either of them
may have
had in mind.”. . . ’
[6] It follows that to the extent that evidence was adduced on that
aspect of the case, it was plainly inadmissible. And to the
extent
that the court below relied on that evidence for its interpretation
of the agreement, it erred. For, as Harms DP pointed
out in
KPMG
Chartered Accountants (SA) v Securefin Ltd
& another
2009 (4) SA 399
(SCA) para 39:
'First, the integration (or parol evidence) rule remains
part of our law. However, it is frequently ignored by practitioners
and
seldom enforced by trial courts. If a document was intended to
provide a complete memorial of a jural act, extrinsic evidence may
not contradict, add to or modify its meaning . . . . Second,
interpretation is a matter of law and not of fact and, accordingly,
interpretation is a matter for the court and not for witnesses . . .
. Third, the rules about admissibility of evidence in this
regard do
not depend on the nature of the document, whether statute, contract
or patent . . . . Fourth, to the extent that evidence
may be
admissible to contextualise the document (since "context is
everything") to establish its factual matrix or purpose
or for
purposes of identification, "one must use it as conservatively
as possible" . . . . The time has arrived for us
to accept that
there is no merit in trying to distinguish between "background
circumstances" and "surrounding circumstances".
The
distinction is artificial and, in addition, both terms are vague and
confusing. Consequently, everything tends to be admitted.
The terms
"context" or "factual matrix" ought to suffice.'
[7] Reverting then to the agreement. Clause 1 states: 'This lease
shall take effect 30 days after the [FAP] is repaired and made
operational'. It is Ashcor’s case that the FAP had never been
rendered operational by Sasol. That, one would have thought,
on the
plain language of the clause, would have been the end of the matter.
But, says Ashcor, Sasol had an obligation in terms
of the agreement
to repair and render the FAP operational. That obligation, so the
contention went, came into effect upon the signature
of the agreement
and Sasol’s failure to do so constituted a breach of the
agreement. In my view any such obligation, if there
be one, extended
unconditionally to Sasol expending no more than R150 000 (clause
2.1). As Claasen J correctly observed:
'Alternatively, even if it were accepted that Sasol was
burdened with the contractual obligation to render the plant
operational,
such duty was circumscribed by an outlay of R150 000 . .
. in such circumstances Sasol complied with its contractual
obligation
to spend the R150 000 for rendering the plant operational.
In the refusal on the part of Sasol to expend any further monies on
the repair, alteration or modification of the plant would not have
established a breach of contract on its part.'
[8] It was Ashcor’s case that Sasol’s obligation in terms
of the agreement was not limited to R150 000. Even were that
to be
so, any such obligation as Sasol may have had to perform beyond the
R150 000 threshold, was conditional upon its exercise
of a right to
review the monthly rental. It was common cause that Sasol had spent
closer to R 1 million on the plant. Clause 2.1
therefore entitled
Sasol to review the monthly rental. The undisputed evidence however
was that Ashcor, whilst contending that
Sasol had to spend an
indeterminate amount in making the FAP operational, flatly refused to
pay an increased rental. In those circumstances,
given Ashcor’s
refusal to perform, Sasol would have been entitled to withhold its
performance. For, as Nienaber J stated
in
Moodley & another v
Moodley & another
1990 (1) SA 427
(D) at 431C-H:
'In
Erasmus v Pienaar
(
supra
at
29
et seq
) Ackermann
J, while expressing reservations about the given reason (that an
unaccepted repudiation operates as a waiver of sorts),
fully endorsed
the notion that the repudiation may release the aggrieved party all
the same from taking measures which, in terms
of the agreement, he
would otherwise have been obliged to take. The Court (at 29A read
with 22J) accepted the proposition (if I
may be permitted to
paraphrase) that the one party's repudiation, though not treated by
the other as a cause for cancellation,
may nevertheless (i) excuse
the latter from formal acts preparatory to performance; and (ii)
entitle him, in appropriate circumstances,
to suspend his own
performance until the guilty party has reaffirmed his willingness and
ability to fulfil his side of the bargain,
provided that the
aggrieved party, to the knowledge of the repudiating one, remained
ready, willing and able to perform his part.
The appropriate
circumstances would be that the aggrieved party cannot proceed
without co-operation from the other or that the
principle of
mutuality of performance would entitle him, eventually, to withhold
his own performance.
The rationale for the rule was said to be (if I may
again paraphrase) that a party to a contract ought not to be allowed,
by his
own wrongful conduct, to advantage himself or to disadvantage
his counterpart. To permit the repudiating party to take advantage
of
the other side's failure to do something, when that failure is
attributable to his own repudiation, is to reward him for his
repudiation; conversely, it would disadvantage the other party to be
obliged to make the effort and incur the expense of tendering
a
guarantee or of performing some other act when such a step, because
of the repudiation, has become nothing but an idle gesture.'
[9] There was a further string to Ashcor’s bow. In addition to
the aforementioned express terms of the agreement Ashcor relied
also
on what it alleged were various tacit alternatively implied terms.
The only one relevant for present purposes being:
‘
that repairing and making of
the fly-ash recovery plant (meaning the fly-ash plant coupled to
boilers 7, 8 and 9) operational, meant
rendering it capable of
recovering all the fly-ash that was produced by boilers 7, 8 and 9
and accumulated in the precipitator
hoppers to which the fly-ash
plant was coupled . . .’
[10] It is to that that I now turn. Terminology in this context is
important. For, as Prof Kerr observes, the employment of incorrect
terminology leads to conceptual confusion (A J Kerr 'Implied
Provisions in Contracts: Is there to be a new role for the
hypothetical
bystander? Conflicting Supreme Court of Appeal
decisions'
2006
SALJ
195).
In
Alfred McAlpine & Son
(Pty) Ltd v Transvaal Provincial Administration
1974 (3) SA 506
(A)
at
532G-533A Corbett JA pointed out that the
significance of the distinction between implied and tacit terms is
not merely academic.
Corbett JA expatiated:
‘
The implied term . . . is
essentially a standardised one, amounting to a rule of law which the
Court will apply unless validly excluded
by the contract itself.
While it may have originated partly in the contractual intention,
often other factors, such as legal policy,
will have contributed to
its creation. The tacit term, on the other hand, is a provision which
must be found, if it is to be found
at all, in the unexpressed
intention of the parties. Factors which might fail to exclude an
implied term might nevertheless negative
the inference of a tacit
term. . . The Court does not readily import a tacit term. It cannot
make contracts for people; nor can
it supplement the agreement of the
parties merely because it might be reasonable to do so. Before it can
imply a tacit term the
Court must be satisfied, upon a consideration
in a reasonable and businesslike manner of the terms of the contract
and the admissible
evidence of surrounding circumstances, that an
implication necessarily arises that the parties intended to contract
on the basis
of the suggested term.'
[11] That we could only be dealing with a tacit term in this case is
evident from the following dictum of Brand JA in
South African
Forestry Co Ltd v York Timbers Ltd
2005 (3) SA 323
(SCA) para 28:
'Unlike tacit terms, which are based on the inferred
intention of the parties, implied terms are imported into contracts
by law
from without. Although a number of implied terms have evolved
in the course of development of our contract law, there is no
numerus
clausus
of implied terms and
the courts have the inherent power to develop new implied terms. Our
courts' approach in deciding whether a
particular term should be
implied provides an illustration of the creative and informative
function performed by abstract values
such as good faith and fairness
in our law of contract. Indeed, our courts have recognised explicitly
that their powers of complementing
or restricting the obligations of
parties to a contract by implying terms should be exercised in
accordance with the requirements
of justice, reasonableness, fairness
and good faith . . . Once an implied term has been recognised,
however, it is incorporated
into all contracts, if it is of general
application, or into contracts of a specific class, unless it is
specifically excluded
by the parties . . . It follows, in my view,
that a term cannot be implied merely because it is reasonable or to
promote fairness
and justice between the parties in a particular
case. It can be implied only if it is considered to be good law in
general. The
particular parties and set of facts can serve only as
catalysts in the process of legal development.'
[12] Clause 5.1 of the agreement expressly and unambiguously
disavowed an obligation on Sasol to render the FAP fit for purpose.
But even were it to be accepted that 'operational' meant 'fit for
design purpose', that could hardly mean able to extract all the
ash,
as such a construction would mean that Sasol was obliged to ensure
that the FAP was capable of rendering a certain quantity
of fly-ash.
That though would fly in the face of the express disavowal in the
agreement by Sasol of any guarantee relating to the
quantity or
quality of the fly-ash to be produced or rendered by the FAP (clause
5.2). Furthermore, such a construction would be
irreconcilable with
the 'walk away regime' created by clauses 5.5 and 5.6 of the
agreement, which gave to Ashcor an exit right
in the event that the
FAP was assessed by it to be incapable of delivering a certain
quality and monthly quantity of fly-ash.
[13] Given the express terms of the agreement there plainly can be no
room for importing the alleged tacit term asserted by Ashcor.
For, as
Trengrove JA put it in
Robin v Guarantee Life Assurance Ltd
[1984] ZASCA 72
;
1984 (4) SA 558
(A) at 567C-D:
‘
A tacit term cannot be
imported into a contract in respect of any matter to which the
parties have applied their minds and for which
they have made express
provision in the contract. As was said by Van Winsen JA in
SA
Mutual Aid Society v Cape Town Chamber of Commerce
1962
(1) SA 598
(A) at 615D:
“
A term is sought to be implied
[a tacit term in the terminology of
Alfred
McAlpine
] in an
agreement for the very reason that the parties failed to agree
expressly thereon. Where the parties have expressly agreed
upon a
term and given expression to that agreement in the written contract
in unambiguous terms, no reference can be had to surrounding
circumstances in order to subvert the meaning to be derived from a
consideration of the language of the agreement only.”
(See also
Pan American Airways Incorporated v SA Fire and Accident
Insurance Company Ltd
1965 (3) SA 150
(A) at 175C.)
[14] The court below accordingly correctly found that the obligation
upon which Ashcor's case rested did not exist and its order
absolving
Sasol from the instance can therefore not be faulted.
[15] As to costs, Ashcor submits that Sasol should have excepted to
its summons as failing to disclose a cause of action. Accordingly,
so
the submission went, Sasol should only have been entitled to costs as
on exception. In
Algoa Milling Company v Arkell and Douglas
1918 AD 145
at 159 Innes CJ stated:
'The declaration as drafted disclosed no cause of
action, and should therefore have been excepted to. Had that been
done, there
would have been a speedy end of the litigation and the
heavy costs subsequently incurred would have been unnecessary. The
defendants,
therefore, will be entitled to such costs in the court
below as would have been incurred had they excepted to the
declaration.'
But, as Greenberg JA made plain in
Cohen v Hayward
1948 (3) SA
365
(A) at 374:
'I do not think, however, that it was the intention of
the Court in the cases quoted to lay down an inflexible rule which
would
deprive the Court of its discretion in regard to costs and
disentitle it, in a proper case, from departing from the Rule.'
[16] It bears noting here that all of the evidence that was
unnecessarily led was led by Ashcor as the plaintiff. Moreover,
Ashcor
sought an order of rectification the effect of which would
have been to radically alter the import of clause 5.2 of the
agreement.
As to the rectification Claasen J recorded:
'It is necessary to state that counsel for the plaintiff
. . . abandoned any reliance on the pleaded rectification. He did so
during
argument after the close of the plaintiff's case.'
In its heads of argument filed with this court Ashcor sought to
resuscitate it. But from the bar in this court, when pressed, counsel
was once again constrained to abandon any reliance on rectification.
Claasen J held:
'The plaintiff's final contention that costs as on
exception should be awarded to the defendant if its contentions are
upheld is
untenable. The defendant was unable to take exception in
the face of allegations entitling the plaintiff to rectification of
the
contract. The abandonment of the rectification claim only
occurred during final argument after the plaintiff had closed its
case.
The defendant cannot therefore be faulted for having failed to
take exception to the causes of action as pleaded by the plaintiff.'
I can find no fault with the approach of the learned judge. Moreover,
given the manner in which the case was pleaded, it would
have taken a
very bold judge to decide the matter on exception.
[17] It follows that the appeal must fail and it is accordingly
dismissed with costs, such costs to include those consequent upon
the
employment of two counsel.
_________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: M Baslion SC
R
S Willis
Instructed
by:
Webber
Wentzel Attorneys
Johannesburg
Naudes
Bloemfontein
For
Respondent: W H G van der Linde SC
F
A Snyckers
Instructed
by:
Cliff
Dekker Hofmeyr Inc
Johannesburg
Phatshoane
Henny Inc
Bloemfontein