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[2021] ZAMPMBHC 4
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Sonae Arauco SA (Pty) Ltd v LT Manifacturing CC (347/2021) [2021] ZAMPMBHC 4 (25 February 2021)
REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT
OF SOUTH AFRICA
(MPUMALANGA
DIVISION, MBOMBELA)
(1)
REPORTABLE:NO
(2)
OF INTEREST TO OTHER JUDGES:YES
(3)
REVISED: YES
CASE
NO: 347/2021
In the matter
between:
SONAE
ARAUCO SA (PTY) LTD
Applicant
and
LT
MANUFACTURING CC
Respondent
J
U D G M E N T
MASHILE
J:
INTRODUCTION
[1]
The Respondent occupies a commercial immovable property (‘the
property”) owned by
the Applicant in terms of a written
agreement (“the agreement”) concluded between the two
parties. The Applicant has
terminated the agreement in terms of
Clause 8.2, which entitles it to furnish a 90-day period notice to
the Respondent of its intention
to cancel the agreement.
Upon
the expiry of the 90-day notice period, the Respondent refused to
vacate the premises. This prompted the Applicant to approach
this
Court on urgent basis seeking the immediate ejectment of the
Respondent. The essence of the final relief sought by the Applicant
is that:
1.1
T
he Respondent be ejected from the property
forthwith;
1.2
In the event of the Respondent refusing to vacate
the property, the
sheriff of the court be authorised to evict the Respondent;
1.3
To the extent necessary, declaring:
1.3.1
the agreement concluded between the parties granting the Respondent a
right of occupation
to the property to be validly terminated and;
1.3.2
declaring the Respondent to be in unlawful occupation of the
property;
1.3.3
The Respondent is and is ordered to pay the costs of this application
on the scale
as between attorney and client.
FACTUAL MATRIX
[2]
On 15 January 2019, at Woodmead, the parties hereto concluded a
written agreement in terms of
which the Respondent would manufacture
bearers/stickers (“stickers”) and sell them to the
Applicant. Some of the salient
terms of the agreement are that:
2.1
The agreement would commence and become effective on 1 January 2019
and would endure for a period of two years,
unless terminated in
terms of the agreement;
2.2
Either party could terminate the agreement at any time without giving
cause by giving the other party at least
90 calendar days prior
notice designating the termination date;
2.3
Should the agreement not specifically be renewed after the expiration
of the two-year term, the agreement
would continue indefinitely and
may be cancelled by either party on 90 calendar day notice to the
other party;
2.4
The parties would in their dealings with each other display good
faith;
2.5
Any dispute (other than where an interdict is sought or urgent relief
may be obtained from a court of competent
jurisdiction) arising out
of or pursuant to the agreement including but not limited to the
termination or cancellation of the agreement,
unless resolved between
the parties, would be referred to such person as may be agreed upon
between the parties, failing such agreement
between the parties
within two days after the occurrence of such dispute, to an attorney
practicing at White River and nominated
by the president of the Law
Society of the Northern Provinces.
[3]
On 30 October 2020, in terms of clause 8.2 of the agreement, the
Applicant notified the Respondent
of its intention to cancel the
agreement by delivering a 90 calendar day notice. The notice
specifically recorded that the termination
date would be 31 January
2021. On 24 November 2020, the parties convened a meeting between the
Applicant and Respondent. The general
understanding at the meeting
was that the agreement would come to an end on 31 January 2021 and
that the Applicant would be under
no obligation to negotiate a
potential renewal of the agreement beyond the 31
st
of
January 2021.
[4]
On 28 January 2021, the Applicant received an email correspondence
from the Respondent advising
that the Board of Directors of the
Respondent had resolved at a meeting held on 27 January 2021 that the
termination of the agreement
was unlawful. The e-mail continued to
state that the Respondent would not vacate the property. It vowed
that it would persist with
its observance of the terms and conditions
described in the agreement past 31 January 2021 until the parties can
find a solution
to the impasse.
ARGUMENTS
[5]
The Respondent challenged the urgency of the application contending
that the Applicant had known
or should have known as early as 17
November 2020 that it was disputing the manner in which the
cancellation clause had been invoked
yet that it waited until 3
February 2021 to approach this Court on urgent basis. This, contends
the Respondent, is in flagrant
disregard of this Court’s
Practice Manual and is oblivious of the prejudice that other
litigants may suffer if the application
is given preference or the
prejudice that the Respondent might suffer by the abridgment of the
prescribed timeframes and early
hearing.
[6]
The Respondent also asserts that there exist genuine disputes of
fact, which the Applicant ought
to have known prior to launching this
application. Where motion proceedings are not suitable ordinarily a
litigant would proceed
by way of action to ensure that the disputes
of fact can be accommodated by oral evidence. The Respondent states
that there is
a dispute on whether the agreement was cancelled
properly and on whether the Applicant acted in good faith as
envisaged in Clause
9 of the agreement.
[7]
The Respondent argues that the Applicant has failed to act in good
faith in its dealings with
it. It asserts that the idea that parties
to a contract should behave honestly and fairly in their dealings
with one another is
a cornerstone of our South African Law of
contract. In that regard, I was referred to the Constitutional Court
case of
Everfresh
Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd
[1]
where
it was held that good faith is a matter of considerable importance in
our contract law and the extent to which are courts
enforce the good
faith requirement in contract law is a matter of considerable public
and Constitutional importance.
[8]
The Constitutional Court continued to hold that the question whether
the spirit, purport and objects
of the Constitution require courts to
encourage good faith in contractual dealings and whether our
constitution insists that good
faith requirements are enforceable
should be determined sooner rather than later. Many people into
contact daily and every contract
has the potential not to be
performed in good faith the shop at five in contract touches the
lives of many ordinary people in the
country.
[9]
Lastly, the Respondent maintains that the dispute process was not
followed alternatively,
the contract was not properly
cancelled. In this regard, I was directed to Clause 10 of the
agreement, which provides for the appointment
of a referee in the
event of disputes. Here the Respondent asserts that the Applicant has
been aware that the Respondent disputed
the manner in which the
Applicant invoked the cancellation clause yet it failed to embark on
the procedure described in Clause
10 of the agreement to have such
disputes resolved in consequence of the Applicant’s failure to
refer the dispute, the Respondent
cannot be held to be in breach of
the agreement.
[10]
The Applicant, on the other hand argues that the respondent’s
alleged contravention of the good
faith provision in Clause 9 of the
agreement does not provide the Respondent with a valid legal right to
remain in occupation of
the property. The defence cannot be
demonstrated in circumstances where the agreement does not
provide for an obligation
on the Applicant to negotiate a renewal of
the agreement. The Applicant concludes that to the extent that
the Respondent
submits that one exists, it is void for vagueness and
unenforceable. The court was referred to
Shepherd
Real Estate Investments (Pty) Ltd v Roux Le Roux Motors CC
[2]
.
[11]
To the extent that the Respondent contends that Clause 8.2 of the
agreement does not have a right to
exist in the agreement, the
Applicant states that it is untenable. Moreover, and in any event,
the Respondent has not sought rectification.
As such, clause 8.2
exists in the agreement and its meaning is clear and unambiguous. Had
the Respondent wanted to refer this matter
to the arbitrator, it
would have done so shortly after receipt of the 90 calendar
day notice terminating the agreement.
The Applicant concludes that
its termination of the agreement in terms of Clause 8.2 is therefore
valid.
[12]
It is settled that
pacta sunt sevanda
is part of our law.
Ordinarily, parties should be bound by terms and conditions of
agreements to which they bind themselves. To
bring this closer to
home, the Respondent cannot wish away the provisions of Clause 8.2
whose provisions are clear. The Respondent
was or should have been
conscious of the import of the contents of Clause 8.2. In the absence
of any invalidity, the clause must
be respected, says the Applicant.
[13]
Turning to urgency of the matter, the Applicant is persistent that
the urgency of the application is
founded on commercial urgency.
Tersely, after it had given the termination notice to the Respondent,
the Applicant alleges that
it entered into another agreement with
Novo Manufacturing (Pty) Ltd to replace the Respondent.
The Respondent’s
refusal to vacate the property not only
exposes it to massive financial loss but also puts it in
a precarious situation
for liability for loss of profit by Novo
manufacturing (Pty) Ltd. The application is for that reason
commercially urgent.
ISSUES
[14]
From the facts and arguments of the parties, I am expected to decide
on:
14.1
The urgency of the matter;
14.2
Failure to observe the provisions of Clause 10 dealing with
arbitration;
14.3
Breach of Clause 9 of the agreement, good faith clause;
14.4
Existence of bona fide disputes of fact.
RELEVANT
PROVISIONS OF THE AGREEMENT
[15] To
a great extent the outcome of this judgment depends on the
interpretation and context of some of the provisions
of the
agreement. For that reason, Paragraphs 2.2, 2.3, 2.4 and 2.5
supra
dealing with cancellation of the agreement without cause, the
indefinite continuance of the agreement if not renewed after two
years until terminated by either party by giving 90-day calendar
notice, good faith and referral to a referee respectively are
significant. The corresponding numbers in the agreement are Clauses
8.2, 8.3, 9 and 10.
LEGAL
FRAMEWORK
[16]
In the case of
Graham
v Ripley
[3]
the court stated the following:
"Where an
owner of property sues for ejectment his real cause of action is
simply the fact that he is owner, and therefore
prima facie entitled
to possession. Consequently, an allegation in his declaration or
summons that he has granted defendant a lease
which is terminated is
merely a convenient way of anticipating defendant's plea that he is
in possession by virtue of a lease,
and is not strictly necessary to
the cause of action."
The approach in
Graham
supra
has
been approved as the position in our law and has been followed in
many subsequent cases. To mention a few,
KRUGERSDORP
TOWN
COUNCIL v FORTUIN
[4]
and CHETTY
v NAIDOO
[5]
[17]
From the cases
supra, the principle that has crystalised is that
the
legal position Where an applicant alleges that the claim for
ejectment is founded on ownership and that the respondent’s
right
of occupation has legitimately come to an end, the onus at that
point shifts to the respondent to justify continued occupation.
Any
addition to the main allegation of ownership such as that the that
the agreement has been terminated has been held to be mere
surplussage and not attracting onus to an applicant.
[18]
Insofar as the Respondent alleges contravention of the good faith
clause, Clause 9, it could be instructive to
refer to the case of
Shepherd Real Estate Investment (Pty) Ltd
supra
where
the following was said at Paragraph 17:
“
The proper
approach in an enquiry such as the present depends upon the
construction of the particular agreement. Accordingly, it
becomes
necessary to analyse the relevant paragraph to decide whether its
proper characterisation is merely an agreement to agree
or whether it
contained legally enforceable obligations. This was not a case where
an external arbitrator was nominated to resolve
certain outstanding
differences. An arbitrator would have been ill-equipped to fill in
the blanks or resolve the questions that
the parties could not. An
arbitrator certainly could not give effect to arrangements that the
parties themselves had not concluded
and then require the party, who
is resisting, to continue with the ongoing relationship. Nor, for
that matter could the arbitrator
simply invoke certain vague,
ill-defined objective standards. But, there is a further
insurmountable difficulty in the path of
the respondent in this case.
It is this: the arbitration clause did not survive the agreement.
Thus, once the
agreement terminated by effluxion of
time, the respondent could no longer invoke the arbitration clause.”
[19]
Regarding recognition and confirmation of
pacta
sunt sevanda
in our law, the Applicant has referred this Court to the following
paragraphs in the Constitutional Court case of
Beadica
231 CC and others v Trustees for the Time Being of the Oregon Trust
and others
[6]
:
“
[83] The
first is the principle that '(p)public policy demands that contracts
freely and consciously entered into must be honoured'.
This court has
emphasised that the principle of pacta sunt servanda gives effect to
the 'central constitutional values of freedom
and dignity'. It has
further recognised that in general public policy requires that
contracting parties honour obligations that
have been freely and
voluntarily undertaken. Pacta sunt servanda is thus not a relic of
our preconstitutional common law. It continues
to play a crucial role
in the judicial control of contracts through the instrument of public
policy, as it gives expression to
central constitutional values.
[84] Moreover,
contractual relations are the bedrock of economic activity and our
economic development is dependent, to a large
extent, on the
willingness of parties to enter into contractual relationships. If
parties are confident that contracts that they
enter into will be
upheld, then they will be incentivised to contract with other parties
for their mutual gain. Without this confidence,
the very motivation
for social coordination is diminished. It is indeed crucial to
economic development that individuals should
be able to trust that
all contracting parties will be bound by obligations willingly
assumed.
[85] The
fulfilment of many of the rights promises made by our Constitution
depends on sound and continued economic development
of our country.
Certainty in contractual relations fosters a fertile environment for
the advancement of constitutional rights.
The protection of the
sanctity of contracts is thus essential to the achievement of the
constitutional vision of our society. Indeed,
our constitutional
project will be imperiled if courts denude the principle of pacta
sunt servanda.”
EVALUATION
URGENCY
[20] I
have had regard to the arguments raised by the Respondent on urgency
in particular, that the Applicant should
have known as early as 17
November 2020 that it was contesting the cancellation. The Respondent
then takes a giant leap and argues
that the urgency is as such,
self-created. This is argued in circumstances where the Respondent
had not yet referred the matter
to the referee as per the
contents of Clause 10 of the agreement. Why should the Applicant have
begun to panic at that
stage? An alarm was raised when the Respondent
made it clear that it would not be vacating the property at the end
of January 2021
and that was on 28 January 2021. I cannot accept that
the urgency was self-created where the Applicant launched this
application
on 3 February 2021.
[21]
Besides, the commercial urgency claimed by the Applicant has been
recognised by the Respondent itself. It acknowledges
that if the
company stay inactive, as is presently, the Applicant will lose
approximately R500 000.00 per day. The amount
is self-evidently,
By any standard, huge. If that is the amount that the Applicant is
losing per day, I shudder to imagine how
many parties that depend on
it are incurring losses. Those other parties have the right of
recourse to the Applicant. The commercial
urgency is therefore
palpable. These were the reasons this Court held that the matter was
sufficiently urgent warranting immediate
hearing by this Court.
FAILURE TO
OBSERVE THE PROVISIONS OF CLAUSE 10 OF THE AGREEMENT (PARA 2.15
SUPRA)
[22] The
Respondent has completely failed to refer the matter to a referee as
contemplated in Clause 10 of the agreement.
It was notified as per
Clause 8.2 as early as 30 October 2020 that the Applicant would be
terminating the agreement at the end
of the 2-year term.
Additionally, it was again made clear to it that renewal of the
agreement was not on the cards at all. Faced
with this categorical
and distinctive attitude of the Applicant, the Respondent laid
dormant and awoke almost when the 90-day notice
period had expired.
[23]
When it did so, it laid the blame at the door of the Applicant for
failure to refer the matter to the referee.
The point is that the
Applicant had no reason to make the referral because insofar as it
was concerned the termination was not
contested. I note the
Respondent’s contention that the Applicant was aware
alternatively,
should have been aware that the Respondent
disputed the cancellation as early as 17 November 2020. The Applicant
never thought that
the issue was disputed because it is common cause
that both parties were mindful of the unambiguous provisions of
Clauses 8.2 And
10. Clearly the party that first became conscious of
the dispute was the Respondent following receipt of the termination
notice.
Strangely, it kept quiet until 28 January 2021.
[24] The
purpose of giving a 90-day calendar notice is understandable and
reasonable. The parties were prudent to imagine
that where a dispute
arises, they would want it possibly resolved prior to the expiry of
the 90 calendar day period. If one of
them, the Respondent in this
instance, perceives a dispute and fails to refer it to the referee,
it cannot turn around and pretend
as though it did not ‘make
its own bed’ when it has to lie on it. In the circumstances,
the Applicant did not fail
to comply with the requirements of Clause
10. In fact, it did not even have any obligation to act in terms
thereof in light of
the provisions of Clause 8.2.
BREACH OF THE
GOOD FAITH CLAUSE
[25] It
is evident from the case of Shepherd Real Estate
supra
that a
court cannot adopt an indiscriminate attitude when dealing
with this question. An appropriate approach
ought to be
one that scrutinizes the construction and manner in which the
provisions of an agreement in each situation are communicated.
The
presence of Clause 8.2, in my opinion, present an insuperable
obstacle for the Respondent. Once parties resolve that an agreement
can be terminated for any reason whatsoever, it diminishes the
utility of the good faith clause making it impossible to co-exist
with Clause 8.2.
[26]
Reference by the Respondent to the Constitutional Court case of
Everfresh Market Virginia supra in the context
of this case is
fallacious. The good faith clause Is vain as a result of absence of
the obligation to negotiate. How can parties
be expected to negotiate
in good faith when the agreement can be terminated for any reason?
This is paradoxical and simply means
that the good faith clause is
hollow in this agreement.
[27]
Like in the Shepherd Real Estate case supra, here too the good faith
clause does not survive the life of the agreement.
The import of this
is that the good faith clause cannot be invoked once the agreement
lapses by the effluxion of time. To conclude
then on the subject,
while good faith is part of our contract law, its efficacy has been
ousted in this case by the presence of
Clause 8.2. Accordingly, its
invocation by the Respondent is misguided and bereft of any merit and
is rejected.
DISPUTES OF
FACT
[28] I
am completely staggered by the Respondent’s claim that there
are disputes of fact. How can this be when
it is common cause that
Clause 8.2 of the agreement is real and its contents unequivocal? If
Clause 8.2 is reality, and disregarding
the Respondent’s
spurious argument that it is not suppose to exist, how can it be
reconciled with the contention that there
are disputes of fact? From
this allegation of disputes of fact, the Respondent leaps ahead and
states that the Applicant should
have foreseen that there would be
disputes of fact. There is no genuine dispute of fact in this case
and the matter can be decided
on these papers without any reference
of part of this case to oral evidence.
[29] In
the result, I am constrained to make the following order:
1.
The application is treated and determined as an urgent application in
terms of uniform rule 6(12) of the uniform
rules of Court, the usual
forms, time limits and requirements for service as provided for in
terms of such uniform rules of court
are dispensed with;
2.
The agreement concluded between the parties granting the Respondent a
right of occupation is declared to have
been validly terminated;
3.
The Respondent is declared to be in unlawful occupation of the
property;
4.
The Respondent is ejected and directed to vacate the manufacturing
plant, situated at the property described
as Farm Dingwell 276,
portion 3 and 13 and Farm Paarlklip, portions 4 and 5
situated at Heidelberg Road, Rocky Drift,
White River, 1240 within 7
calendar days from date hereof;
5.
In the event of the Respondent refusing to comply with the provisions
of the preceding paragraph, the sheriff
of the court is authorised
and directed to evict the Respondent;
6.
The Respondent is ordered to pay the costs of this application.
______________________________
B A MASHILE
JUDGE OF THE HIGH
COURT OF SOUTH AFRICA
MPUMALANGA
DIVISION, MBOMBELA
This judgment was
handed down electronically by circulation to the parties and/or
parties’ representatives by email. The date
and time for
hand-down is deemed to be 25 February 2021 at 10:00.
APPEARANCES:
Counsel for the
Applicant:
Adv BR Edwards
Instructed
by:
Shepston & Wylie Attorneys
Counsel for the
Respondent:
Adv R Van Schalkwyn
Instructed
by:
Chris
Greyvenstein Attorneys
Date of
Hearing:
16 February 2021
Date of Judgment:
25 February 2021
[1]
2012
(
1
)
SA
256
(
CC
)
[2]
2020
(2) SA 419
(SCA) at para 17
[3]
1931
TPD 476
[4]
1965
(2) SA 335
(T)
[5]
[1974]
3 All SA 304 (A)
[6]
2020
(9) BCLR 1098
(CC)