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[2018] ZAGPJHC 686
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Hattingh and Another v Swart and Another (19454/18) [2018] ZAGPJHC 686 (26 November 2018)
REPUBLIC OF
SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG LOCAL DIVISION,
JOHANNESBURG)
CASE NO:
19454/18
In the matter
between:
STEYN JOHAN
HATTINGH 1
st
Applicant
DYNAMIC PLASTIC PACKAGING
CC 2
nd
Applicant
and
GERT JOHANNES
SWART 1
st
First Respondent
COMBINED BROKER NETWORK (PTY)
LTD 2
nd
Respondent
JUDGMENT
KEIGHTLEY J
1.
This is an application
for the setting aside of a writ of execution issued under case number
36584/2015 against the first applicant,
Mr Steyn, on the basis that
there was no
causa
for the writ. The first respondent, Mr Swart, is the party in
favour of whom the writ was issued. He opposes the application
to set it aside. The writ authorised the Sheriff of this court
to take into execution movable goods of Mr Steyn to the value
of R12,
455, 152. 00.
2.
The writ was sought
some two years after a judgment was granted by this court under the
aforementioned case number on 27 May 2016
(“the 2016
judgment”). That judgment concerned a dispute between the
parties emanating from an agreement entered
into between them in
October 2014 in terms of which Mr Swart sold his member’s
interest in an entity called Dynamic Plastic
Packaging CC (“Dynamic”)
to Mr Steyn (“the agreement”). The outcome of the present
application depends
on an interpretation of certain clauses of the
agreement.
3.
There is no dispute
that the parties entered into the agreement. For present
purposes, a number of terms are relevant.
The scheme of the
agreement envisaged that Mr Steyn would be liable to pay a purchase
price made up of two elements: the first,
was a price of R12.5
million (for simplicity I refer to this as the basic price); the
second element was excluded from the basic
price, and it was
constituted by “the loan account that has to be determined”.
It seems to be common cause that
the splitting of the purchase price
into these two elements was because there was some dispute between
the parties (who had previously
been jointly involved in Dynamic) as
to the actual value their drawings from, and loan accounts with, the
company.
4.
This is why, it seems
that provision was made, under “conditions precedent” for
the appointment of an accountant to
quantify the second element of
the purchase price. The relevant clause of the agreement is 5.2
and it provides as follows:
“
The
seller through his attorney and the purchaser also through his
attorneys will jointly appoint a professional accountant for
the sole
purpose of quantifying the seller’s loan account as well as any
further amounts that may be due to the seller for
drawings not taken
up by the seller during his lifetime of involvement with the
Business, which amount, excluding the sellers loan
account, shall not
be more that the drawings taken up the purchaser for the same
period.”
5.
Clause 5.3 provided
that Mr Steyn would account to Mr Swart and pay him the value of the
loan account, taking into account the percentage
entitlement, and a
calculation to ensure that the drawings from the business would be
equal. Clause 5.5 is one of the clauses
the interpretation of
which is disputed. It provides that:
“
The
parties endeavour to finally appoint a professional accountant within
14 business days from the Effective date which will include
the scope
of work of the quantification of the seller’s loan account and
drawing as stated in clause 5.2 above.
The
decision of the professional accountant will be final after both
parties accepted such quantification after finalisation of
the
determination of the loan account
.”
(Emphasis added)
6.
The sale was made
subject to the fulfillment of the conditions (clause 6.1) and clause
6 set out a payment schedule for the basic
purchase price (clauses
6.2.1 - 6.2.3), with the payment of the loan account being provided
for as follows in clause 6.4:
“
After
the quantification of the loan account and other drawings due to the
seller
, further
payments of R200 000.00 per month until the loan account amount and
other drawings due to the purchaser
which
was quantified by the auditor and agreed upon between the parties has
been settled.
...”
(Emphasis added)
7.
Finally, clause 10.2.2
dealt with orders for specific performance and damages on breach.
It provided that if Mr Steyn was
the defaulting party, Mr Swart’s
right to claim specific performance would include “the right to
claim immediate payment
of the full balance of the purchase price and
any other amount
then
outstanding
”.
8.
What led to the 2016
judgment was Mr Steyn’s breach of the agreement by failing to
comply with his obligations to the auditor
that was appointed.
Under the agreement, the parties were obliged to consult with the
auditor at his request, give him access
to financial records
regarding historic business dealings, and not unreasonably withhold
any information requested. The court
found that Mr Steyn’s
conduct in failing to render co-operation to the auditor amounted to
a breach of these obligations.
It also found that because of
such breach, Mr Swart was “also entitled to the benefits of the
acceleration clause contained
in the agreement”. This was
presumably a reference to clause 10.2.2 cited above. On this
basis, the court ordered,
among other things, that Mr Steyn pay to Mr
Swart “the balance of the purchase price outstanding”.
The judgment
does not specify an amount.
9.
What led to the present
dispute between the parties is that the auditor appointed by
agreement between them eventually provided
the parties with his
“Factual Audit Dynamic Plastic Packaging CC” (“the
audit report”). It concluded
with paragraph 7:
“
Recommendation
It is therefore
recommended that Steyn pay Swart the amount of R12 455 152. 00 as
calculated per annexure 19”.
10.
Mr Swart’s
attorney wrote to Mr Steyn’s attorney thereafter and advised,
with reference to the recommendations in the
report, that Mr Steyn
owed Mr Swart this amount, with interest. Further, the letter
advised that the attorney’s instructions
were that:
“
In
terms of clause 5.5 of the Agreement of sale of members interest our
client hereby accepts the decision of Wehmeyer and
accepts
the quantification
of the loan accounts and drawing as per the report. Since the
loan accounts and drawing have now been quantified and your
client
has been found to be in breach of the agreement causing our client to
enforce the acceleration clause,
the
whole amount is due and payable immediately
... in terms of clause 10.2.2 of the sale agreement. Kindly
revert back to us re your client’s stance ... .”
(Emphasis added)
11.
Mr Steyn did not agree
and instructed his attorneys to advise that he did not accept the
audit report. His view was that in
terms of clause 5.5 of the
agreement, the report was required to be accepted by both him and Mr
Swart before it was binding.
In the usual manner of litigation,
further communications flowed between the attorneys. Mr Swart
sent a letter of demand
for the amount he claimed was owed, and when
he did not receive satisfaction, he applied for the writ on 20 April
2018. The
writ was issued on 24 April 2018.
12.
Mr Steyn’s
application proceeds on the basis that on a proper interpretation of
the relevant clauses of the agreement, the
auditor’s
quantification of the amount due by him under the second element of
the purchase price is not final and binding
until both parties have
agreed to it. He also takes issue on various grounds with what
he says are irregularities (including
alleged grounds of
unreasonableness) perpetrated by the accountant who compiled the
report, and he contends that the report is
liable to be set aside for
these reasons.
13.
As to the latter
contention, Mr Steyn submits that it is permissible to seek the
setting aside of the report on the basis that it
is akin to a report
of a referee appointed in terms of
section 38
of the
Superior Courts
Act 10 of 2013
. Further, that if I find the report is reviewable as
he contends, the effect will be that there is no
causa
to sustain the writ. However, there is no application before me to
set aside the report of the accountant and in the absence of
such an
application, I cannot find that the report should be set aside.
At best for Mr Steyn, his contentions in this regard
may be relevant
to the
bona fides
of his refusal to accept the report, and to show that his preferred
interpretation of the relevant clauses of the agreement are
not
unreasonable.
14.
As regards the correct
interpretation of the agreement, Mr Steyn points in particular to
clause 5.5 and clause 6.2.4. He submits
that both of these
clauses plainly say that the quantification by the auditor must be
agreed upon by the parties before he is liable
to Mr Swart in the
amount so quantified. Mr Steyn’s case is that because he
refused to accept the quantification of
the auditor (on what he says
are reasonable grounds), Mr Swart could not rely on it as a lawful
causa
for the writ. Mr Steyn further submits that the auditor himself
referred to his quantification as a “recommendation”,
and
that this is in line with his (Mr Steyn’s) interpretation of
the relevant clauses of the agreement. In addition,
he says
that even Mr Swart’s conduct on receipt of the audit report is
in line with his interpretation. He points to
Mr Swart’s
attorney’s letter of 10 March 2018 in which it is recorded that
Mr Swart accepts the quantification in the
report. The
implication of this is that Mr Swart understood that both parties had
to accept the quantification before it
would fall due.
15.
Mr Steyn also submits
that the application for the writ incorrectly stated that the 2016
judgment had ordered him to pay an amount
of R12 455 152. 00 to Mr
Steyn. What the court ordered was that the balance of the
purchase price was payable, but, says
Mr Steyn, as this amount was
not final until both parties had accepted the quantification, the
judgment did not provide a lawful
causa
for the writ.
16.
Mr
Swart submits that Mr Steyn’s interpretation of the contract is
not a commercially sensible construction,
[1]
and
that it would be absurd to interpret the agreement as requiring that
both parties must accept the quantification, as this would
be
inconsistent with the ordinary meaning of “final”.
17.
In his written heads of
argument, Mr Swart submits that in order to give a sensible and
businesslike meaning to clause 6.2.4, the
existing word “and”
between “auditor” and “agreed” should be
altered to read “as”.
In other words, this clause
must be read as: “
..
until the loan amount and other drawings due to the purchaser which
was quantified by the auditor [and]
as
agreed upon between the parties has been settled.
”
(The “and” in square brackets must be removed, and the
underlined “as” inserted, on Mr Swart’s
interpretation.)
18.
As to clause 5.5, Mr
Swart submits that the only sensible interpretation that can be given
to this clause is to read it to mean
that the parties would accept
the decision of the auditor, and that it should be read as “
The
decision of the professional accountant will be final [after]
and
both parties
would
[accepted]
accept
such quantification after finalization of the determination of the
loan account
”.
Once again, the words in square brackets are deleted from the
original on Mr Swart’s proposed interpretation,
and the
underlined words are added on his proposed interpretation.
19.
In oral submissions
before me, counsel for Mr Swart submitted that the word
“quantification” in clause 5.5 and clause
6.2.4 was to be
given its ordinary meaning, being the
process
of determining an amount, rather than the actual amount determined.
In other words, he submitted that what the parties intended
was that
they would have to agree on the
process
of quantification, but not on the amount determined through that
process. Once again, it was submitted that this was the
most
commonsense and business-like meaning to be ascribed.
20.
Although the approach
to interpretation has been refined by a plethora of judgments of our
higher courts in recent years, these
judgments do not suggest that
courts should ignore the actual wording a contract to which parties
have agreed, when its meaning
is disputed. In fact, they have
reinforced the need to pay proper regard to the language used.
As the SCA stated in
the first of this recent series of judgments:
“
The
‘
inevitable
point of departure is the language of the provision itself
’,
read in context and having regard to the purpose of the provision and
the background
”.
[2]
(Emphasis
added)
21.
In other words, the
objective of trying to achieve a sensible and businesslike meaning to
commercial contracts does not imply that
a court may depart freely
from the language used in order to do so. In the same judgment,
the SCA warned that:
“
Judges
must be alert to, and guard against, the temptation to substitute
what they regard as reasonable, sensible or businesslike
for the
words actually used. To do so ... in a contractual context ...
is to make a contract for the parties other than the
one they in fact
made.
”
[3]
22.
In considering clause
5.5 I am unable to see the absurdity alleged by Mr Swart to emanate
from the plain wording. While it
does refer to the report being
“final”, this is immediately qualified by “
after
both parties accepted such quantification”. It seems to
me to be clear that what the clause means is that the quantification
will be done, but must be accepted as final by both parties before
the amount determined will be regarded as final, due and payable
under clause 6.2.4. This latter clause, which deals
specifically with the issue of when the second element of the
purchase
price will become due, and how it will be paid, echoes
clause 5.5 in this regard: it plainly states that the quantification
must
be agreed upon. This linked reference to the requirement
of agreement between the parties cannot have been placed in the
agreement for no purpose, and effect should be given to what appears
to have been a deliberate repetition of the necessity for agreement
between the parties before Mr Steyn would have to pay the loan
element of the purchase price.
23.
I was not referred to
any particular dictionary definitions of the word “quantification”
by counsel for Mr Swart to
support the oral argument that what the
clauses mean is that all the parties were required to agree to was
the quantification process
by which the accountant would determine
the amount of the loan and drawings. The Oxford Dictionary of
English gives the meaning
of “quantification” as being:
“
the
expression or measurement of the quantity of something
.”
I am not sure that this definition is particularly helpful to Mr
Swart’s argument: it seems to me that the
definition includes
both the process of reaching a quantity or amount, as well as the
actual expression of that quantity or amount
arrived at. In any
event, it seems to me that clause 6.2.4 puts paid to the
interpretation favoured by Mr Swart. It
makes it plain that it
is the amount that was quantified which must be agreed upon (“
... the loan account
amount
and other drawings due to the purchaser
which
was quantified
by
the auditor and
agreed
upon
between the
parties ....” (my emphasis)
24.
To adopt the changed
wording that Mr Swart contends reflects the true meaning of these
clauses would be to embark upon the type
of folly that the SCA has
warned should not be attempted: it would remove words with one plain
meaning from the clauses, and replace
them with different words,
rendering a very different meaning. In my view, this would
amount to nothing less than an impermissible
exercise on the part of
the court in making a contract for the parties that they did not
intend to make.
25.
I am also not persuaded
in any event that there is anything necessarily unbusinesslike in the
parties committing to agreement on
the quantification determined by
the accountant. It seems to be common cause that the drawings
and loan accounts was a bone
of contention between the parties.
Against this background, the need for agreement between them on the
amount arrived at
by the accountant makes sense. To put it
differently, it would make sense that the parties reserved their
rights to dispute
the amount determined by the accountant by
insisting that both parties agreed to the amount determined.
This does not mean
that either party could simply refuse, without
reason, to agree to the determined amount. If that occurred,
the other party
would have appropriate remedies available to enforce
its rights under the agreement. In any event, that is not the
case here,
as Mr Steyn alleges various bases on which he says he
reasonably disputes the amount determined. Whether those
grounds are
sustainable is not for me to determine. It must
await possible further litigation between the parties.
26.
I conclude, for these
reasons, that the interpretation contended for by Mr Steyn is
correct. Under the agreement, the amount
due by Mr Steyn in
respect of the loan element of the purchase price was to be finally
determined not simply by the quantification
of the accountant.
The agreement further required that the parties would both accept
that quantification. As Mr Steyn
did not accept the
quantification, it could not lawfully provide a
causa
for the writ, and the writ must be set aside.
27.
I make the following
order:
1. The writ of execution
under case number 36584/2015 dated 20 April 2018 issued by the
Registrar on 24 April 2018, a copy of which
is annexed to this Order
is set aside.
2. The Respondent is
ordered to pay the costs of the application.
_____________________
R M, KEIGHTLEY
JUDGE OF THE
HIGH COURT OF SOUTH AFRICA,
GAUTENG LOCAL
DIVISION, JOHANNESBURG
DATE OF HEARING: 30 OCTOBER 2018
DATE OF JUDGMENT:
26 NOVEMBER 2018
APPEARANCES
APPLICANT’S
COUNSEL: L HOLLANDER
INSTRUCTED BY: SWART WEIL VAN DER
MERWE GREENBERG
1
ST
RESPONDENT’S
COUNSEL: RS SHEPSTONE
INSTRUCTED BY: JS BERG ATTORNEYS
[1]
Airports
Company South Africa Ltd v Airport Bookshop (Pty) Ltd t/a Exclusive
Books
2017
(3) SA 128
(SCA) at [21]
[2]
Natal Joint
Municipal Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA)
at 604, recently referred to with approval by the Constitutional
Court in Trinity Asset Management (Pty) Ltd v Grindstone
Inc 132
(Pty) Ltd
2018 (1) SA 94
(CC) at [52]-[55]
[3]
Endumeni,
above, at 604