BP Southern Africa (Pty) Ltd v Mahmood Investments (Pty) Ltd (683/08) [2009] ZASCA 153; [2010] 2 All SA 295 (SCA) (27 November 2009)

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[2009] ZASCA 153
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BP Southern Africa (Pty) Ltd v Mahmood Investments (Pty) Ltd (683/08) [2009] ZASCA 153; [2010] 2 All SA 295 (SCA) (27 November 2009)

Links to summary

THE SUPREME COURT OF
APPEAL
OF SOUTH AFRICA
CASE
NO: 683/08
B
P SOUTHERN AFRICA (PTY) LIMITED
a
ppellant
and
MAHMOOD
INVESTMENTS (PTY) LIMITED Respondent
Neutral
citation: (683/2008) BP Southern Africa v Mahmood Investments
(683/08) [2009] ZASCA
153 (27 November 2009)
Coram
: HARMS
DP, LEWIS, MLAMBO AND MAYA JJA, AND HURT AJA
Heard: 17
November 2009
Delivered: 27
November 2009
Summary
:
Petrol
filling station owner obliged in terms of contracts of sale of
property and supply of products to conduct business of filling

station: refusal to comply amounts to a repudiation of both contracts
warranting eviction and retransfer of property to seller/supplier.
ORDER
On appeal from:
High Court,
Pietermaritzburg
(Msimang
and Jappie JJ and Mokgohloa AJ sitting as a full court).
1 The appeal is upheld with costs, including those of
two counsel.
2 The order of the court below is altered to read:
‘
The appeal is dismissed with costs.’
JUDGMENT
LEWIS JA (HARMS DP, MLAMBO AND MAYA JJA AND HURT AJA
concurring)
[1] On 3 June 1999 the appellant, BP Southern Africa
(Pty) Ltd (BP), entered into three contracts in respect of a petrol
filling
station in Umgeni Road, Durban with Mr Abdul Malek: a sale of
property on which the petrol filling station had been erected by BP,

a supply agreement for petrol and related products and an equipment
loan agreement. Malek in each case was acting for an entity
yet to be
formed. The respondent, Mahmood Investments (Pty) Ltd (Mahmood
Investments), succeeded to Malek. The dispute between
the parties
arises from their different understandings of their rights and
obligations under the three contracts. Before turning
to the
contracts themselves a brief summary of the facts is necessary.
[2] Possession of the filling station was given to
Mahmood Investments shortly after 3 June 1999. It is not clear from
the papers
precisely when that was but it is common cause that it
commenced running the filling station before it took transfer of the
property
and before the supply agreement actually became operative.
Transfer of the property to Mahmood Investments took place on 28
September
1999. But before then, it had let the property to Argyle
Umgeni Service Station CC (Argyle). The lease commenced on 1
September
1999 and was for an initial period of three years. The
lease was conditional on a supply agreement being concluded between
BP and
Argyle. That was done – though more about that agreement
(the Argyle supply agreement), and an agreement to suspend the supply

agreement with Mahmood Investments, later.
[3] BP supplied Argyle with petrol and other products
for some three years. But it then discovered, during the course of
2003, that
Argyle was selling the products of other suppliers in
contravention of the Argyle supply agreement. BP demanded that
Mahmood Investments
terminate its lease with Argyle and resume the
operation of the filling station itself. BP removed its dispensing
equipment from
the premises and called upon Mahmood Investments to
comply with its obligations under the supply agreement, tendering
return of
the equipment. Mahmood Investments indicated that it did
not want the pumps reinstalled and would not operate a filling
station
from the premises. (I shall discuss the correspondence
between the parties and its legal consequences later.)
[4] BP accordingly applied to the Durban High Court for
an order declaring that the sale agreement had been cancelled, and
evicting
Mahmood Investments from the property. The latter opposed
the application and counter applied for the cancellation of the
servitudes
that had been registered over the property pursuant to the
agreement of sale. The high court (K Pillay J) granted the orders
sought
by BP and dismissed the counter application. Mahmood
Investments appealed with the leave of the high court to a full court
(Msimang
J, Jappie J and Mokgohloa AJ concurring) which upheld the
appeal and ordered that the servitudes over the property be
cancelled.
It is against this order that the appeal lies, with the
special leave of this court.
[5] The issues before us are, first, the meaning to be
given to certain provisions in the agreement of sale, read with the
supply
agreement and the equipment loan agreement, and, second,
whether there was a breach of the supply agreement by either of the
parties.
The court of first instance based its decision on the
meaning to be attributed to the sale agreement, whereas the full
court, on
appeal, did not consider it necessary to interpret the
provisions in issue, finding that BP had repudiated the supply
agreement,
entitling Mahmood Investments to cancel it, and to have
the servitudes over the property reinforcing the supply agreement
cancelled
too.
The provisions of the sale agreement in issue
[6] Clause 9, headed ‘suspensive conditions’,
provided that:
1
'This agreement is subject to the fulfilment of the conditions
detailed below within the time limits as indicated, failing which

within a reasonable time.
9.1 signature by both parties of the supply agreement detailed in 11
below at the time of signing of this agreement.
9.2 registration against the title of the property of the servitude
detailed in 10 hereof. . . .
The parties hereto undertake to use their best endeavours to expedite
fulfilment of the conditions detailed above within a reasonable
time
from date of signature hereof. It is recorded that the conditions
detailed above have been imposed solely for the benefit
of the seller
and that the seller shall accordingly be entitled at its sole
election to waive compliance with any one or more of
these conditions
and/or to extend the period considered as reasonable for fulfilment
thereof.'
[7] Clause 10, headed ‘Servitude’, and which is at
the heart of the dispute, reads:
‘It is a condition of the sale of the property that:
10.1 The said property
shall not be used for any purpose other
than for the purpose of conducting thereon the business of a garage,
filling and/or service
station’
(my emphasis). (I shall refer
to the business as a filling station, but that encompasses all the
other functions set out in the
provision.)
‘10.2 No petroleum fuels, products and/or lubricants other than
those manufactured and supplied by the seller and/or any other

manufacturer/distributor approved by the seller in writing shall be
stored, handled, sold or distributed or dealt with in any manner

whatsoever on or from the said property save with the prior written
consent of the Transferor.
10.3 The purchaser shall not be entitled to alienate, lease, mortgage
or encumber the property in any manner whatsoever without
first
obtaining the written consent of the seller, which shall not be
unreasonably withheld, as will more fully appear from the
provisions
of clause 16.2 of the supply agreement to be entered into between the
parties as provided for in clause 11 below.
10.4 The abovementioned conditions shall be binding on the purchaser
and his successors in title and shall remain in force until
the
termination of all supply ties between the parties as provided for in
the supply agreement referred to in paragraph 11 below.
In the event
of a breach of the above-mentioned agreement by the purchaser or any
other dispute leading to the termination of supply
ties as embodied
in the above mentioned agreement then the conditions imposed in 10.1
and 10.2 above shall continue to be of binding
force and effect
notwithstanding the breach or dispute leading to such termination for
the duration of the time period provided
for in the supply agreement
had the termination not taken place.
10.5 It is agreed that the conditions contained in this clause shall
be registered against the title deed of the property as conditions
of
title simultaneously with the transfer of the property into the name
of the purchaser. The purchaser undertakes to sign all
documents
necessary to give effect to the aforegoing.
10.6 The purchaser shall, immediately on termination of all supply
ties between the parties, as provided for in 10.4 above, be
entitled
to make the necessary application to note the lapse of the servitude,
or to remove the servitude. The seller hereby warrants
and undertakes
to sign immediately on request by the purchaser all documents
necessary to effect the noting of the lapse or the
removal of the
servitude. Should the seller fail to sign the necessary documents the
parties agree that the seller hereby authorises
as the purchaser to
act as its agent to sign all such documents on his behalf.'
(The parties are agreed that the word ‘condition’ in
clause 10 means term: there is nothing conditional about it.)
[8]
The next provision of note is clause 17 which deals
with breach. This provides that
‘[S]hould the purchaser fail to fulfil any of his obligations as
herein provided and remain in default for a period of 14 (fourteen)

days subsequent to written notice requiring him to remedy such
breach, the seller shall have the right either:
to
cancel this sale forthwith without further notice to the purchaser
and to re-take possession of the property should possession
have
been given to the purchaser in which event all payment(s) made by
the purchaser on account of the purchase price shall be
for the
seller's account and retained by him as liquidated damages. . .; or
to
hold the purchaser bound by any purchase and to claim the payment of
the full amount then owing in respect of the purchase
price and
interest due, and the fulfilment of all the terms and conditions
hereof.’
[9] The conditions referred to in clause 9 were
fulfilled: the supply agreement was signed by the parties on 3 June
1999, and servitudes
were registered against the title deeds when the
property was transferred to Mahmood Investments on 28 September 1999.
At issue,
however, is whether clause 10.1 imposes an obligation on
Mahmood Investments to operate a filling station on the property, or
whether
it is obliged only to refrain from operating any other
business there. If there is a positive obligation to operate a
filling
station (at least for the duration of the supply agreement)
then plainly Mahmood Investments would be in breach of contract if it

failed or refused to do so. The court of first instance found that
there was such an obligation. The full court made no finding
in this
regard. In my view the construction of the provision is crucial to
the determination of the dispute.
[10] BP contends that although the language used is in
the negative (the property ‘shall
not
be used for any purpose
other than
for the purpose of a garage . . .’) the only sensible construction
to be given to it is one that obliges Mahmood Investments
to operate
a filling station. It makes no commercial sense, it argues, to
construe the provision as merely an undertaking to do
nothing at all
with the property if it does not operate a filling station.
[11] It is settled law that a contractual provision must
be interpreted in its context, having regard to the relevant
circumstances
known to the parties at the time of entering into the
contract:
KPMG
Chartered
Accountants (SA) v Securefin Ltd.
2
It is also clear that a provision must be given a commercially
sensible meaning. In this regard see
Bekker NO
v Total South Africa (Pty) Ltd
3
and
Ekurhuleni Municipality v Germiston
Municipal Pension Fund
.
4
The context, particularly the fact that the three agreements were
concluded on the same day, is not in dispute.
[12] BP argues that the construction of the provision as
imposing a positive obligation on Mahmood Investments is consonant
with
the business efficacy of the agreement. That is to be viewed in
the light of all the circumstances relevant to the sale of the
property. These include the fact that BP had developed the property
by constructing a garage and petrol filling station on it. It
sold
this to Mahmood Investments on the basis that a supply agreement
would be entered into: indeed the sale was conditional (in
the true
sense) on the supply agreement being concluded. This would have made
no sense had it been intended that after the agreement
was concluded,
and the property transferred to Mahmood Investments, the latter would
be entitled to hold the property and not to
operate a filling station
on it. The contract of sale would not have made commercial sense but
for the conclusion of the supply
agreement and the operation of the
filling station.
[13] The supply agreement, as I shall show, could well
have endured for 10 years, in which time BP’s investment in the
filling
station would be recovered not only through the payment of
the purchase price but also through the income generated for BP.
Indeed
the heading of clause 2 of the supply agreement reads
'
Fundamental underlying basis of this
agreement’
(my emphasis). Clause 2.1
records that the dealer (Mahmood Investments) is about to become the
owner of the premises. Clause 2.2
records that BP has invested a
substantial amount of capital for the purpose of optimising the
operational and marketing structure
of the premises including the
buildings, the forecourt, the dispensing and service station
equipment and the visual standards.
These provisions clearly signify
that the underlying basis of the sale agreement is an obligation to
operate a filling station
on the premises sold.
[14] Moreover the sale agreement required that
servitudes be registered against the title deed of the property,
apparently for the
purpose of ensuring that any successor in title to
Mahmood Investments would also operate a filling station for the
duration of
the supply agreement. Clause 10.6, set out above,
provided for the procedure to cancel the servitudes on the
termination of supply
ties.
[15] The third contract concluded by the parties on 3
June 1999 regulated the loan of equipment by BP to Mahmood
Investments. BP
undertook to lend storage and dispensing equipment,
free of charge, to Mahmood Investments for the purpose of selling the
products
supplied by BP. Clause 6 provided that BP would have rights
of access to the property to inspect and maintain the equipment. It

also purported to give BP the right to remove the equipment from the
property on termination of the supply agreement. This provision
would
of course be unenforceable: it permits spoliation. But it too shows
that the sale was dependent on Mahmood Investments operating
the
filling station.
Breach of the supply agreement
[16] Each party complains of a breach of the supply
agreement by the other. BP alleges that, by refusing to operate a
filling station
on the property, Mahmood Investments was in breach of
clause 8 which sets out the obligation of the dealer to run the
filling station,
and to stock and supply only BP products. And of
course it alleges as well that this conduct is a breach of the sale
agreement
such that BP was entitled to cancel it. Mahmood
Investments, on the other hand, alleges that BP repudiated the supply
agreement
when it removed the pumps and the dispensing equipment. The
correspondence between the parties’ attorneys in this regard, and

the affidavits in the application, are bedevilled by confusion. The
confusion arose, it appears, because agreements entered into
after
the property was let to Argyle were drafted but not signed. It is
necessary to clarify the issues, as well as the duration
of the
supply agreement, before dealing with the respective arguments on
breach.
[17] The ‘supply period’ is defined in the supply
agreement as an initial period of three years commencing on the date
of transfer
(28 September 1999), and terminating on the ‘expiry
date’ (defined as the last day in a period of 36 months), provided
that
BP had an option to extend the agreement for a further period of
three years, and then a further period of four years. The options

would be ‘deemed to have been automatically exercised’ unless BP
informed Mahmood Investments in writing to the contrary, at
least 90
days before the expiry of any of the periods. The supply agreement
would thus, in the ordinary course, have run until
27 September 2009.
[18] Mahmood Investments let the property to Argyle from
1 September 1999. The lease provided that it was ‘entirely
conditional
upon the lessee entering into a supply agreement with
[BP]’ which had a servitude registered over the property
‘entrenching
their rights to the supply of their branded fuel and
related products to any service station operator leasing the
premises’ (clause
4). Clause 5 provided that the premises could be
used ‘only for the purposes of conducting the business of a BP
service station
in terms of the supply agreement’.
[19] It was thus anticipated that Argyle would enter
into a supply agreement with BP. And indeed one was drafted, together
with
an equipment loan agreement between BP and Argyle. But, as I
have said, the drafts were not signed by the parties. They
nonetheless
acted on the basis that there were contracts in place and
BP supplied products to Argyle from September 1999 until November
2003.
[20] The supply agreement between BP and Mahmood
Investments was suspended in terms of a ‘suspension of supply
agreement’ between
BP, Mahmood Investments and Argyle, also not
signed by any of the parties. This agreement recorded the fact that
the Argyle supply
agreement was to be concluded, and provided that
the supply agreement between BP and Mahmood Investments ‘shall be
suspended
during the currency of the [Argyle] supply agreement, with
effect from the 28 September 1999’. The suspension agreement also
provided that the owner (Mahmood Investments) ‘undertakes, save
with the written consent of BP, to use the premises for the purpose

of a garage petrol filling and service station only’.
[21] BP discovered during 2003 that Argyle was stocking
and selling products of other suppliers. On 6 November 2003 BP’s
attorney,
Mr S Langa, wrote to Mahmood Investments advising that
Argyle was selling products that BP had not supplied. He said that BP
required
Mahmood Investments to ‘remove the current operator’
from the premises and ‘to take over the operation of the service
station
in terms of the supply agreement with yourselves’. If
Mahmood Investments failed to do so within 14 days, the letter
stated,
BP would have no option but to terminate the supply agreement
with it.
[22] Langa, and no doubt BP, were under the impression
that because there was no signed supply agreement with Argyle, the
supply
agreement between BP and Mahmood Investments was still in
operation. The parties accept now, however, that BP had performed in
terms of the contracts drafted but not signed and that those
contracts were binding. That includes the suspension agreement.
[23] In fact, therefore, it was the Argyle supply
agreement that had been breached by Argyle. Mahmood Investments’
attorney, Mr
A Martin, pointed this out in a letter dated 12 November
2003. He claimed, however, that the supply agreement had been
superseded
by the Argyle supply agreement. This is a misconstruction
of the suspension agreement which provided not that it would be
replaced
by the Argyle supply agreement but that the supply agreement
with Mahmood Investments would be suspended for the duration of the

Argyle supply agreement. I shall revert to this issue.
[24] Martin wrote to Langa on 5 January 2004 saying that
Mahmood Investments could do nothing to prevent Argyle from supplying
other
products, and that BP, which had been threatening to remove its
pumps, should put an end to the problem by doing that: ‘it is

probably best that it do so’.
[25] By 15 April 2004 BP had indeed removed the pumps.
Martin wrote directly to BP, stating that as a result of the removal
Argyle
was in breach of its lease which had thus terminated. Martin
stated further that Mahmood Investments wished to redevelop the
property
and could not do so until the underground tanks were removed
by BP. He demanded that BP remove them by 30 April. Martin also
informed
BP that the servitudes had lapsed and that he was preparing
documents for their cancellation which he would send for signature.
[26] To this Langa replied on 21 April, stating that
although the pumps had been removed, the supply agreement had not
been terminated,
and the servitudes had not lapsed. Martin’s
response to that, on 17 May 2004, was that the supply agreement had
not been suspended
but had terminated and that Mahmood Investments
did not intend to operate a filling station itself. Martin asserted
that BP’s
conduct in removing the pumps constituted a repudiation
of the supply agreement (despite his previous assertion that the
supply
agreement no longer existed) which Mahmood Investments had
‘accepted’.
5
[27] Langa’s response, on 29 July 2004, was that
Mahmood Investments was itself in breach of the sale and supply
agreements which
required it to conduct a filling station and supply
BP products. He pointed out that BP was entitled to remove the pumps
in terms
of the supply agreement (in fact the equipment loan
agreement). He did not add that it had been asked to do so by Martin
himself.
The letter gave notice to Mahmood Investments in terms of
clauses 17 and 18 of the sale and supply agreements to remedy its
breach.
Return of the pumps was tendered should Mahmood Investments
give a written undertaking that it would comply with the notice.
[28] Martin responded on 6 August 2004. It was never the
intention of Mahmood Investments, he said, to run a filling station
itself.
The supply agreement had lapsed when the property was let to
Argyle. BP had destroyed the business by removing the pumps. ‘The

site and consequently the business is hopeless. Your client is well
aware of this fact.’ He repeated that the removal of the
pumps
constituted a repudiation by BP. The tender by BP to reinstall the
pumps was ‘absurd’. He enclosed the documents purporting
to
cancel the servitude and demanded removal of the storage tanks.
[29] BP, through Langa, wrote to Mahmood Investments on
29 October 2004 cancelling the sale and supply agreements with
immediate
effect. It advised also that it would apply for an eviction
order and transfer to it of the property. And so it did.
[30] The high court granted the application and
dismissed Mahmood’s counter application for the cancellation of the
servitudes.
As I have said, the court of first instance found that
clause 10.1 of the sale imposed an obligation on Mahmood Investments
to
operate a filling station, but the full court on appeal dismissed
BP’s application and ordered that the servitude be cancelled.
The
basis for that decision was that even if Mahmood Investments had been
obliged to operate a filling station by the sale agreement
(making no
finding in this regard), when BP gave notice to remedy the breach the
supply agreement had been terminated because it
was impossible to
operate the filling station once BP had removed the equipment.
[31] In my view, the court below misconstrued the terms
of the supply agreement and failed to take into account the
suspension agreement.
It did not consider what the consequences of
the breach by Argyle had been agreed by the parties to be: that the
lease of the property
to Argyle and the Argyle supply agreement would
terminate, and the supply agreement between the parties would come
back into operation.
It is true that when notice was given the pumps
had been removed – but the parties had agreed that BP was entitled
to do so in
certain circumstances, and Mahmood Investments had not
just consented to their removal: through Martin it had requested that
they
be removed.
[32] It was not BP that repudiated the sale and supply
agreements. Mahmood Investments repudiated both contracts in refusing
to
perform its obligation to operate a filling station on the
property. It evinced a clear intention no longer to be bound by the
contracts, demanding removal of the pumps and the tanks, and stating
that it had no intention of running a filling station.
[33] Counsel for Mahmood Investments argued before us
that at the time of the notice to remedy the breach, and of the
cancellation
itself, the supply agreement had terminated. Some five
years had elapsed since the agreement had commenced. The argument
fails
to take into account that the first three-year period had been
suspended, and began running again only when the Argyle supply
agreement
terminated. The supply agreement was thus current when
notice was given in July 2004, and would have been automatically
renewed
had BP not terminated it.
[34] Counsel also argued that BP did not rely on
repudiation in its founding papers. It is true that the word
‘repudiation’
is not used. But BP does rely on breach. And the
breach it alleges is a refusal to operate a filling station. That is
a repudiation.
The absence of the label is irrelevant.
[35] Accordingly Mahmood Investments repudiated both the
sale and the supply agreements. It communicated its refusal to comply
with
the provisions through its attorney on several occasions, as
outlined. BP elected to cancel both agreements, as it had the right

to do. It is thus entitled to claim eviction of Mahmood Investments
from the property and transfer of the property to it, as the
court of
first instance correctly found.
Order
[36]
1 The appeal is upheld with costs, including those of
two counsel.
2 The order of the court below is altered to read:
‘
The appeal is dismissed with costs.’
______________
C H Lewis
Judge of Appeal
Appearances
For
Appellant: A I S Redding SC
D
J Vetten
Instructed by
Routledge
Modise in association with Eversheds
Sandton,
Johannesburg
Matsepes
Inc
Bloemfontein
For
Respondent: D J Shaw QC
E
A Matthis
Instructed
by
J H
Nicolson Stiller & Geshen
Musgrave
Durban
Symington
& de Kok
Bloemfontein
1
The capital letters and emphasis used by the parties are omitted in
this clause as well as others quoted.
2
[2009] ZASCA 7
(13 March
2009); 2009 (4) SA 399
(SCA)
para
39.
3
1990 (3) SA 159
(T) at 170G-H.
4
[2009] ZASCA 154
(27 November 2009)
5
See
Datacolor International (Pty) Ltd v Intamarket (Pty) Ltd
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA) on the principles governing repudiation, and
the terminology.