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[2018] ZASCA 176
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The City of Tshwane Metropolitan Municipality v Blair Atholl Homeowners Association (106/2018) [2018] ZASCA 176; [2019] 1 All SA 291 (SCA); 2019 (3) SA 398 (SCA) (3 December 2018)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 106/2018
In
the matter between:
THE
CITY OF TSHWANE METROPOLITAN
MUNICIPALITY APPELLANT
and
BLAIR
ATHOLL HOMEOWNERS
ASSOCIATION RESPONDENT
Neutral
Citation:
The City of Tshwane Metropolitan
Municipality v Blair Atholl Homeowners Association
(106/2018)
[2018] ZASCA 176
(3 December 2018)
Coram:
Navsa ADP, Swain and Dambuza JJA and
Mokgohloa and Mothle AJJA
Heard:
7 November 2018
Delivered:
3 December 2018
Summary:
Separation of issues in terms of Uniform rule
33(4) – repeated warnings that careful thought should be given
to a separation
of issues, and that convenience and expedition should
be the object, not heeded – when issues are inextricably linked
a full
ventilation of all the issues is more often than not the
better course and might ultimately prove expeditious and provide
finality
– interpretation of an Engineering Services Agreement
– foundational principles of interpretation often ignored –
recent experience showing that written text unjustifiably relegated –
extensive inadmissible extrinsic evidence wrongly allowed
–
parol evidence rule still part of our law – not for witnesses
to interpret document – court’s task –
evidence of
negotiations inadmissible.
ORDER
On
appeal from:
Gauteng Division of the High
Court, Pretoria (Murphy J sitting as court of first instance).
1 The appeal is upheld
with costs including the costs of two counsel and the issues that
remain, beyond that dealt with in para
2 of this order, are remitted
to the court below for further hearing.
2 The order of the court
below is set aside and substituted with the following:
‘
1.
It is declared that the reference in clause 6.16.1 of the Engineering
Services Agreement to the “normal rate of a municipality”
is not a reference to tariff 6 of the Tshwane Schedule of Tariffs,
attached as annexure “C” to its declaration.
2.
Costs of proceedings thus far are reserved, pending final
determination of the outstanding issues.’
JUDGMENT
Navsa
ADP and Mothle AJA (Swain and Dambuza JJA and Mokgohloa AJA
concurring ):
[1]
Right at the outset, even before litigation commenced, the essential
dispute between the parties was about which of a range
of tariffs the
appellant, the City of Tshwane Metropolitan Municipality (the City),
a local authority operating in terms of the
Local Government:
Municipal Structures Act 117 of 1998 (the Structures Act) and the
Local Government: Municipal Systems Act 32
of 2000 (the Systems Act),
could charge the respondent, the Blair Atholl Homeowners Association
(the Association), for the water
it supplies to a housing estate
which the latter administers. The court below, the Gauteng Division
of the High Court, Pretoria,
after the parties had agreed thereto and
purportedly acting in terms of rule 33(4) of the Uniform Rules of
Court, made an order
of separation which, as will become clear, will
have the effect that the essential issue remains unresolved.
[2]
Careful thought should be given to a separation of issues and the
issues to be tried separately have to be clearly circumscribed
in
order to avoid confusion. A decision on a separate issue should be
dispositive of a portion of the relief claimed and essentially
should
serve expedition rather than cause delay in the resolution of the
principal issue. In this case the order of separation
will have the
latter rather than the former result. These are all aspects to which
we shall revert later in this judgment. The
background to the appeal
is set out hereafter.
[3]
During 2003 and 2004, Mr Robert Wray (Wray), the directing mind of
Wraypex (Pty) Limited (the developer), started formulating
plans to
develop a township near Lanseria Airport, comprising a residential
golfing estate. At that stage the land envisaged for
the development
fell outside of the City’s priority development areas. It was
located outside the urban development edge.
The development was to
comprise four extensions, the greater part of which was located
within the City’s jurisdiction and
the remainder within the
jurisdiction of Mogale City. A major problem encountered by the
developer was that, because the land was
situated outside of the
urban edge and beyond priority areas, the City was not yet supplying
water to that area nor was it in contemplation
in the immediate
future. The developer, through Mr James Croswell of Croswell
Engineers, entered into discussions with the City
to resolve this
difficulty and to attempt to persuade the City to facilitate the
development of the proposed township by providing
water and other
municipal services to the area.
[4]
Pursuant to discussions, the developer submitted a Development Scheme
Report to the City for approval and suggested that it
was prepared to
make arrangements with the Rand Water Board for direct bulk water
supply and intended to arrange a package plant
type sewage works to
cater for the development. The approach to Rand Water did not bear
fruit. Thus, the water supply had to be
provided by the City.
[1]
[5]
The City was only prepared to provide water to the area on the basis
that the developer fund the construction of a 20 kilometre
water
pipeline that would enable the water to be supplied to the new
development. It also required the developer to construct an
internal
and external reservoir and a sewage package plant. This would all
have to be done within engineering specifications set
by the City. In
the discussions between the City and those representing the
developer’s interests it was envisaged that a
non-profit
company would be registered in terms of s 21 of the Companies Act 61
of 1973 (the Companies Act),
[2]
which would take over the developer’s rights and obligations.
It was also envisaged that the s 21 company would be responsible
for
the maintenance of the internal reservoir, the sewage package plant
and the internal water reticulation network. That company
would then
apply for a metered connection from the City and would arrange for
individual homeowners within the estate to pay for
their water
consumption. Internal water reticulation and maintenance thereof
would also be tended to by the s 21 company to be
formed.
[6]
After extended discussions and exchanges of written communications as
well as several drafts of a contemplated written agreement,
an
Engineering Services Agreement (the ESA), central to the present
dispute, was concluded in February 2006. The ESA gave rise
to the
incorporation of the Association, which was registered, in terms of s
21 of the Companies Act 61 of 1973 (the Companies
Act), as the
contemplated non-profit s 21 company.
[7]
The City made a financial contribution to the expansion of the
diameter of the 20 kilometre water pipeline in order for it to
supply
other developments along the route. It also undertook, after the
completion of the pipeline, to maintain it as well as to
maintain the
external reservoir. It was also envisaged by the parties that Mogale
City Municipality would benefit from the installation
of the water
pipeline in that it would be able to tap into the water supply south
of the estate.
[8]
We now turn to the salient parts of the ESA. The preamble reads as
follows:
‘
WHEREAS the applicant is the
owner of the property; and
WHEREAS the applicant has applied for
the establishment of the township on the property; and
WHEREAS the township is totally
outside a priority area with no water and sewerage services
available; and
WHEREAS the Municipality is willing to
approve the Services Scheme of the proposed township subject to the
conditions contained
herein.’
[9]
The ESA recorded that the developer would be responsible for the
installation and construction of internal services in accordance
with
specifications. It provided for the registration of the s 21 company
and the transfer thereto of rights and obligations from
the
developer.
[10]
The material parts of clause 4.2.1 of the ESA are set out hereafter:
‘
The property (and township) is
not located within a service priority area of the Municipality. The
Municipality has accordingly
agreed that the Applicant, at the
exclusive cost of the Applicant; except as otherwise provided for
herein, provide such external
services necessary for the effective
functioning of the internal services of the township in accordance
with the Municipal Engineer’s
standards and criteria . . . .’
[11]
The relevant parts of clause 4.2.4 provides:
‘
4.2.4 Further to paragraph
4.2.1 hereof it is recorded that Municipality will not provide,
supply or install external services to
the Township. The Municipality
does however agree:
4.2.4.1 To support the construction of
an on site sewage package plant designed and constructed to the
approval of Municipality
and the Department of Water Affairs and to
permit the Applicant and thereafter the Section 21 Company to own,
maintain and operate
said plant in perpetuity. The operation of this
package plant shall be done by a suitably qualified operator,
approved by the Municipal
Engineer.
4.2.4.2 To support the construction of
a bulk water supply line from point A on the attached plant to the
“Blair Atholl Reservoir”
situated on Portion 2 of the
farm Vlakfontein 494-JQ at the Applicant’s expense (subject to
4.2.3.4) on a route agreed to
by the Municipal Engineer and to the
Principle and Standards of the Municipal Engineer.’
[12]
The ESA provided for maintenance by the City of the external water
pipeline. Clause 4.2.4.6 provided that the City would ‘take
over and accept ongoing professional responsibility for the bulk
water pipeline upon the expiry of the defects liability period’.
In line with the City’s undertaking referred to above, the ESA
provided for the City to accept responsibility for ‘the
external reservoir’. Clause 4.2.5 reads as follows:
‘
It is recorded that the
external water pipeline and the appurtenant reservoir has been, at
the request of the Municipal Engineer,
sized to provide water beyond
the identified demand for the Township and the proposed Monaghan
Country Estate.’
[13]
Clause 6 of the ESA was relied on heavily by the Association in
support of its case in relation to the separated issue, which
we will
come to in due course. It provided for the Association, as successor
to the developer, to take over responsibility for
the maintenance of
all internal services, including water, sewage, roads and storm water
at their own cost.
[14]
Clauses 6.14 and 6.15 of the ESA provides:
‘
6.14 To enable the Owners
Association to maintain the services, it is a requirement that a
trust fund must be created for this purpose,
and a fixed amount be
deposited by every owner into the fund every month. This amount must
be determined during a General meeting
of all the owners and should
be escalated every year.
6.15 Municipality hereby agrees that
the Section 21 Company may levy a charge on the owners or residents
of the Township to meet
the cost of operating, maintaining, repairing
and possible replacement of their internal Services, booster pump
station and package
plant.’
[15]
The critical clause in relation to the separated issue, is 6.16,
which reads as follows:
‘
In recognition
of the
acceptance of responsibility by the Section 21 Company of the duties
normally performed by the Municipality, the Municipality
agrees to:
6.16.1 Supply water to the Section 21
Company at the normal rate of the Municipality.
6.16.2 Not raise a sewerage charge
(basic charge).’ (Our emphasis.)
[16]
The external and internal services as described above were
constructed and installed. The housing estate was developed and
individual homeowners started taking occupation. Water meters were
installed at the housing estate. Initially, there were disputes
regarding the accuracy of meter readings. The greater dispute that
arose was in relation to the rate at which the Association was
billed.
[17]
At this stage it is necessary to set out the scale of rates applied
by the City within its area of jurisdiction in relation
to the supply
of water that was set by a resolution of the City and contained in a
notice issued in terms of
s 75A(3)
of the
Local Government: Municipal
Systems Act 32 of 2000
.
[3]
We
refer only to the details of relevant rates and not to those that are
clearly inapplicable:
‘
SCHEDULE
WATER
TARIFF
PART
I
A.
CHARGES FOR THE
SUPPLY OF WATER
1.
SCALE A:
AGRICULTURAL HOLDINGS AND FARM PORTIONS FOR RESIDENTIAL PURPOSES
EXCLUDING CONSUMERS UNDER SCALE C
. . .
2.
SCALE B: SINGLE
DWELLING-HOUSES
(metered separately by the Municipality and
excluding dwelling-houses from which an unregistered business is run)
This scale is applicable to
conventional metering, pre-paid yard metering, assumed and shared
consumption billing.
(a) The tariff applicable to a
consumer in a dwelling-house for water consumed since the previous
meter reading is as follows:
Per
kℓ
R
(i)
0
to 6 kℓ per 30 days’ period (200 ℓ a day)
5,13
(ii)
7
to 12 kℓ per 30 days’ period
5,30
(iii)
13
to 18 kℓ per 30 day’s period
5,70
(iv)
19
to 24 kℓ per 30 day’s period
6,10
(v)
25
to 30 kℓ per 30 day’s period
6,10
(vi)
31
to 42 kℓ per 30 day’s period
6,10
(vii)
43
to 72 kℓ per 30 day’s period
6,80
(viii)
More
than 72 kℓ per 30 day’s period
8,00
Provided that the quantity of water
consumed in (i) above be rebated at 100%. Provided further that in
the case of duet houses not
metered separately, the applicable kℓ
in (i) to (vii) be increased by 100 %.
3.
SCALE C: FLATS,
TOWN HOUSES AND OTHER SECTIONAL TITLE DEVELOPMENTS ON STANDS WITH
MORE THAN TWO DWELLINGS
(not metered separately by the
Metropolitan Municipality)
. . .
4.
SCALE D: ALL
CONSUMERS WHO DO NOT FALL UNDER SCALE A, B, C AND E
(a) The tariff applicable to a
consumer for water consumed since the previous meter reading is as
follows:
(i)
0
– 10 000 kP per 30 days’ period
6,10
(ii)
10 001
– 100 000 kP per 30 days’ period
5,80
(iii)
More
than 100 000 kP per 30 days’ period
5,50
The new uniform non-residential tariff
structure will be phased in for Scale F users and other bulk users
currently receiving special
discounts for the next two years with an
overall discount of 10% and 5% respectively.
5.
SCALE E: HOMES FOR
THE AGED AND RETIREMENT CENTRES
. . .
6.
BULK WATER SUPPLY
TO OTHER MUNICIPALITIES
(a) A quantity charge for water
supplied since the previous meter reading according to the applicable
Rand Water tariff including
the Water Research Fund levy, plus 10%
administrative charge or as per agreement.’
[18]
The City started billing the Association under Scale D,
with the intention of later switching to Scale B, when all the stands
in
the township would be fully occupied. Scale D is marginally more
advantageous than Scale B and the Association was adamant that
it was
only liable to pay the rate under tariff 6 which states that it is
for ‘bulk water supply to other municipalities’.
[19]
The Association took up the attitude that tariff 6 was specifically
agreed to prior to the conclusion of the ESA and that in
any event,
contextually, the normal rate in relation to the supply of water to
the estate would be tariff 6. In this regard they
pointed to the fact
that they had assumed the responsibilities of a municipality and that
the Association was therefore
like
a municipality and was entitled to the bulk rate for municipalities.
In support of that contention, they relied on the introductory
words
of clause 6.16, set out in para 15 above, which specifically notes
that the rate agreed was
‘
[i]n recognition
of the acceptance of the duties normally performed by the
Municipality’.
[20]
The dispute concerning the application of the scale of the tariffs
and payment for the water supply endured for a period of
two years.
Whilst the dispute raged, the Association did not pay its water
consumption bill. During 2010 the City interrupted the
water supply
to the estate, which led to an urgent approach to court by the
Association, which in turn led to an interim agreement
regarding
water supply, but did not settle the dispute concerning the rate at
which the estate was to be billed.
[21]
Subsequently, the Association applied to the court below for an order
in the following terms:
(a) Declaring that the
reference in clause 6.16.1 of the ESA to the ‘normal rate of
the Municipality’ is a reference
to the normal rate charged for
bulk water supply to other local governments as contemplated in
paragraph 6 of annexure C to the
declaration.
(b) That the City is
directed to render accounts to the Association in accordance with the
bulk charge rate as provided for in its
schedule of tariffs.
[22]
The matter initially came before Preller J on an urgent basis. It
appears that a number of years passed before he made an order
in the
following terms:
‘
1. The matter is referred to
trial unless the parties agree to refer it to arbitration.
2. The applicants are to institute the
action within 20 court days after the date of this order.
3. Pending the finalization of the
action the applicants are to pay for water supplied to the township
of Blair Atholl at the rate
of bulk supply to the Respondent plus
10%.
4. The question of costs of this
application is referred to the court hearing the action between the
parties.’
[23]
In January 2015 the Association, as plaintiff, filed a declaration in
which it sought an order, essentially in the terms set
out in para 21
above, but, additionally, in the alternative, sought an order for
rectification of the ESA by the insertion of the
word ‘bulk’
between the words ‘normal’ and ‘rate’ in
clause 6.16.1. At this stage, it is necessary
to have regard to
material parts of the City’s plea. The City, in opposing the
action in relation to the merits denied, inter
alia, that any of its
officials was authorised to ‘conclude [any] agreement with [the
developer] regarding a special rate
in terms of which [the City]
would supply water to [the developer]’. Furthermore, the City
stated:
‘
21.3 In amplification of the
aforementioned denial the Defendant further pleads the following:-
21.3.1
on or about 3 February 2006, which is the date on which the
Engineering Service Agreement
was concluded, the determination
of charges payable by any consumer to the Defendant for the supply of
water, was as per the charges
reflected in Annexure “CTM2”,
a copy of which is attached hereto.
21.3.2
Ex facie
Annexure “CTM2”:
a)
no provision is made for a “normal bulk rate”;
b)
provision is made
only
for a category of “
bulk water
supply to other municipalities
”; and
21.3.3
other than the February 2006
Engineering Service Agreement
concluded between Defendant and Second Plaintiff, there has never
been any agreement on an amendment of any provision, including
the
provisions of
clause 6.16.1
, of the
Engineering Service
Agreement
, which defined First Plaintiff as “a
municipality” for the purpose of charges payable to the
Defendant for the supply
of water as per tariffs provided for in
Annexure “CTM2”.
21.4 The category “
bulk water
supply to other municipalities
” as provided for Annexure
“CTM2” was applicable on 30 September 2006 (which is the
date on which the First Plaintiff
was incorporated) and remains
applicable to date.’
[24]
The City also filed a counterclaim in which it sought, first, payment
of amounts which it contended were due in terms of Scale
D. It sought
payment of R4 101 725.60 and R8 672 844.70. It
also sought declaratory orders in the following
terms:
‘
1.1 that the Defendant was
entitled in terms of the
Water Supply By-laws
, read together
with the
Debt
Collections and Credit Control By-laws
and the
Systems Act
, to restrict the supply of water to the
First Plaintiff’s premises on the lawful basis that the First
Plaintiff was, on or
about the 3
rd
of December 2010, in
arrears with its accounts; and
1.2 that the Defendant is entitled in
terms of the
Water Supply By-laws
, read together with the
Debt
Collection and Credit Control By-laws
and the
Systems Act
,
to restrict the supply of water to the First Plaintiff on the lawful
basis that the First Plaintiff remains currently in arrears
with its
accounts.’
[25]
In its plea to the counterclaim, the Association, inter alia, stated
the following:
‘
5.3 Alternatively, the
provisions of clause 3 of the Water Supply By-laws (Notice 801 of
2003) covered the special arrangements
entered into in respect of
clause [6.16.1] of the Engineering Services Agreement.
5.4 To the extent that the Water
Supply By-laws and the Debt Collection By-laws and the Credit Control
By-laws read together with
the Debt Collection and Credit Control
Policy, published in the Provincial Gazette dated 27 February 2002,
purport to exclude the
provision of water at the normal bulk rates of
the Municipality to the Blair Atholl community as intended in the
said clause 16.1.1,
which is denied, they are:
5.4.1
Inconsistent with Part 1 of Chapter 8 of the Municipal Systems Act 32
of 2000, in particular sections 74(2)(a) and (d), which
require that
a tariff policy on the levying of fees for municipal services must
reflect, at a minimum, certain principles, including
that:
5.4.1.1 users of municipal services
should be treated equitably in the application of tariffs; and
5.4.1.2 tariffs must reflect the costs
reasonably associated with rendering the service, including capital,
operating, maintenance,
administration and replacement costs, and
interest charges.
5.4.2
Inconsistent with Part 2 of Chapter 8 of the Municipal Systems Act 32
of 2000, in particular section 76(b), which authorizes
a municipality
to provide municipal services through an external mechanism by
entering into a service delivery agreement with,
inter alia
, a
community based organisation or other non-governmental organisation
legally competent to enter into such agreement, or any other
institution, entity or person legally competent to operate a business
activity.
5.4.3
Unconstitutional and invalid in that they violate the constitutional
principle of legality upheld in section 1(c) of the Constitution.’
[26]
As can be seen, in line with what is stated in the opening paragraph
of this judgment, the essential dispute between the parties
related
to the rate at which the Association was to be billed for its water
supply. In essence, the dispute centred on the parties’
differing views on the interpretation of clause 6.16 of the ESA. The
dispute was about whether the words ‘normal rate’
was the
‘bulk rate for municipalities’ or one of the other
categories on the scale of tariffs. The legality of the
clause, in
the event of a finding that it was the latter rather than the former,
was also an issue.
[27]
Before us, it appears that the matter was decided on a separated
issue, namely, an interpretation of clause 6.16 and consequently
which of the categories referred to in the scale of rates applied. No
order of separation was made at the commencement of proceedings
and
there was no order at that time that the remaining issues were to
stand over. We will, later in this judgment, deal in greater
detail
with this aspect. For the moment, suffice to say that a trial,
ostensibly on the separated issue, ensued.
[28]
The trial was conducted before Murphy J. Croswell, referred to
earlier, was the only witness to testify on behalf of the
Association.
As the Association’s consulting engineer, he was
intimately involved in the negotiations and discussions that led to
the
conclusion of the ESA. He testified that the City’s
standard agreement was adapted to the specific needs of this
development.
He explained how he and others contributed to the
details and specifics contained therein. Croswell described how there
was a series
of draft agreements exchanged between the parties and
that the finalisation of the ESA took several months. Croswell’s
evidence
was led, ostensibly, on the basis of providing context to
the conclusion of the ESA.
[29]
Insofar as clause 6.16 was concerned, he testified that he insisted
upon its inclusion and that it was clearly understood that
‘the
normal rate of the municipality’ would be the bulk rate. The
following question was put to Croswell under cross-examination:
‘
But what does normal rate mean?
--- Normal rate means one of these rates. That is all it means.
Good okay. --- Okay.
You have always understood normal
rates to mean that? --- To mean a bulk rate. I mean we had [been]
discussing from the day that
the Council said they cannot supply
water, we had [been] discussing bulk rates.’
The
admissibility of Croswell’s testimony in this regard is an
aspect to which we will revert later in this judgment.
[30]
In respect of his insistence that clause 6.16 be included in the ESA,
he pointed to an arrow he had made, in manuscript, in
the margin
alongside tariff 6 in the draft that had served before the parties’
representatives during negotiations leading
up to the conclusion of
the ESA. This, he explained, was to highlight that it was an issue
that was raised, discussed and agreed
upon.
[31]
Croswell recalled that the meeting at which the rate was discussed
was acrimonious and that Wray, his principal at the time,
had stormed
out during the discussions and had to be calmed down. Under
cross-examination, Croswell was referred to his earlier
evidence by
way of affidavit in which he had indicated that it was not necessary
to rectify the agreement by inserting the word
‘bulk’
between the words ‘normal’ and ‘rate’. He
testified that it was not necessary to rectify
the agreement as
sought in the alternative by the Association because all the parties
understood it to be the ‘bulk rate’.
From that stage
onwards the rectification initially sought by the Association was
abandoned.
[32]
Significantly, though, Croswell, later, contrary to his earlier
testimony referred to in para 29 above, under cross-examination,
conceded that the issue of the applicable rate ‘was not
resolved’.
[33]
The City led the evidence of two witnesses, namely, Mr Frans Mouton
(Mouton) and Mr Ansen Lamprecht (Lamprecht). At the time
of the
conclusion of the ESA, Mouton was the Director for Water and
Sanitation Planning. His duties included the determination
of
infrastructural requirements in line with the City’s planning
policies. He testified that the Finance Department of the
City
provided guidelines for the application of the scale of tariffs.
Mouton also testified that he had attended a meeting during
April
2005 at which other officials of the City were present and that
Croswell and someone else representing the developer were
also in
attendance. He recalled that the developer had asked for a special
rate to be applied in respect of the supply of water
to the
Association. Mouton was adamant that the developer was told
emphatically that they could not comply with the request as
the City
was bound by its approved tariffs.
[34]
According to Mouton, the developer had called for a tariff that would
be in line with the bulk rate for municipalities, namely
the Rand
Water Board rate plus ten per cent. Mouton testified that the
developer was told that no exceptions would be admitted
in relation
to the approved rates. He insisted that this was a consistent stance
adopted by the City. He and the City officials
considered themselves
bound by the the Systems Act, the Constitution and other applicable
statutory prescripts. In respect of whether
a switch could be made
from Scale D to Scale B, Mouton testified that it could be done, but
that a specific process had to be followed
in order for that to
occur. He did not elaborate.
[35]
When Mouton was cross-examined, he was challenged on his memory in
relation to the number of years that had passed since the
meeting he
had testified about. He could not recall an incident in which
Croswell’s principal had stormed out. Although Mouton
was
sketchy on detail, he was unmoved on the question of whether a
concession on the rates had been made and the consistency of
the
City’s position in relation to the application of rates.
[36]
For reasons that will become clear, it is necessary to record that
when Mouton testified in-chief, he was, in effect, asked
to interpret
clause 6.16 and was asked what he understood by ‘normal rate’.
At that stage there was rightly an objection
but counsel on behalf of
the City continued with that line of questioning. Although counsel
tried to disguise the fact that he
was asking about the agreement, he
nevertheless went on to ask what Mouton considered as the ‘normal
rate’. That question
was allowed.
[37]
Counsel on behalf of the Association, in cross-examining Mouton,
asked about clause 6 and the meaning of ‘normal rate’.
A
little later, counsel for the Association, once again, attempted to
have Mouton interpret clause 6.16. Subsequently, the following
exchange, which is instructive, took place between counsel and the
court:
‘
MR STRYDOM:
M’Lord
my learned friend … [incomplete]. I have asked in
evidence-in-chief when I asked him about the contract and
he objected
he said, no, leave that out. You are not supposed to ask this witness
about the contract because he cannot testify
about it. He was not
party to the contract. There is no evidence that links him to the
contract and the question of the interpretation
of the contract is to
be left to the court. That was my learned friend’s submission.
Now in cross-examination he reads from
the contract and he asks what does this mean “recognition”
and he reads the sentence.
Now all of a sudden the witness must then
come and give an interpretation of the contract.
COURT
: Yes.
MR STRYDOM
: So he is blowing
hot and cold as far as this is concerned.
COURT
: What is good for the
[geese] is good for the gander.
MR STRYDOM
: He has already made
up his bed and he must stick to it.
COURT
: Yes.
MR LUDERITZ
: No, no, my learned
friend is mistaken.
COURT
: Yes.
MR LUDERITZ
: Firstly I am not
asking the witness to interpret the agreement. I am trying to
establish what the words “normal rate”
would mean. The
evidence was that the discussion at the meeting, if that version is
to be accepted, is that mention was made of
the words “normal
rate”. What I am debating with the witness is what would be the
normal rate in the context of a given
set of facts. The given set of
facts where it is common cause that … [incomplete]. Let us not
call it the homeowners association
let us call it B is rendering all
of the services that a municipality would ordinarily render such as
another municipality by way
of example Mogale City.’
[38]
Lamprecht, a civil engineer, testified that he was an engineering
consultant with the City at the time of the conclusion of
the ESA. He
knew both Wray and Croswell. He testified that it was the City’s
preference to supply water to consumers directly,
rather than doing
it through the Rand Water Board. Discussions took place about the
manner in which this could be done. When the
developer agreed to pay
for the installation of the water pipeline, the City agreed to take
over the maintenance and to supply
water.
[39]
Lamprecht recalled the meeting at which Mouton was present. He
testified that the developer had undertaken to maintain internal
services. Lamprecht further testified that either Croswell or Wray
asked for a special municipal tariff. He could not recall the
incident involving Wray storming out of the meeting.
[40]
According to Lamprecht, the municipal officials informed the
developer that they could not agree to a special tariff and could
not
deviate from the approved tariffs. Lamprecht was involved in
finalising the ESA. He was as adamant as Mouton that the City
was
consistent in applying and adhering to its scale of tariffs set out
in para 17 above. Like Mouton, Lamprecht was subjected
to
cross-examination on the accuracy of his memory of events.
[41]
Lamprecht, too, testified about the meaning to be attributed to
certain words in the ESA. He was asked in-chief:
‘
Now I am not going to go into
the detail of the contract but what does normal rate mean to you? I
am talking in general; I am not
talking about the contract now. ---
Well that is the only rates that the Council has, is a set of rates
to provide water to consumers
it is approved by the City Council
every year with the budget and it is promulgated in the provincial
gazette.’
A
little later, he was referred specifically to clause 6.16 and was
asked what the ‘normal rate’ meant.
[42]
An objection followed and counsel on behalf of the Association
engaged the court and said the following:
‘
MR LUDERITZ
: M’Lord
the case that we are advancing M’Lord, is premised on a
reasonable interpretation of the clause. Now that debate
takes place
in the context of the words in recognition of the acceptance of
responsibility by the section 21 company of the duties
normally
performed by the municipality, the municipality agrees to. Now the
municipality agrees to do two things, it agrees not
to raise a
sewerage charge and it agrees not to supply water to the section 21
company at the normal rate. So there is, on a factual
level, a clear
correlation between the meaning to be attributed to the words normal
rate and the introductory part which says in
recognition of. Because
what the clause contemplates is a
quid pro quo
, and what one
needs to understand is what is the
quid
and what is the
pro
,
and the rate, the normal rate is informed by the
quid
and it
is that that I am exploring with the witness, and what is the meaning
and his understanding of the words “in consideration
for”.
. . .
COURT
: Ja so you factually, you
are factually interrogating the motive for the clause being in the
agreement and you would say to me
that is relevant and falls into the
context of the background and surrounding circumstances of the
agreement.’
The
court went on to allow the question.
[43]
In respect of the introductory words to clause 6.16, Lamprecht
testified that this was due to the wording of the standard agreements
used and adapted by the City. Mr Lamprecht would not concede that the
Association could be treated as a municipality for the purposes
of
the tariff to be applied. However, counsel on behalf of the
Association relied upon a concession made by Mouton, namely, that
the
Association had assumed a number of obligations that would normally
fall to a local authority.
[44]
Murphy J construed this to mean that there was a concession by Mouton
that if no municipal services were rendered by the City,
‘then
the normal tariff for the supply of water in bulk from point A to
point B is Rate 6’. The court below considered
Mouton’s
concession, that the tariffs in scales A to E were the costs
reasonably associated with the rendering of municipal
services by the
City, including operating costs, maintenance, administration and
replacement costs as well as interest charges,
to mean that he
accepted that the City rendered no specific service to the
Association, yet sought to charge for it.
[45]
The court below considered Lamprecht’s evidence not to exclude
the possibility that tariff 6 applied. Murphy J held it
against
Lamprecht that his recollection of a meeting that occurred twelve
years ago was vague. The following paragraphs of the
judgment of the
court below contain the court’s reasoning and conclusion in
relation to clause 6.16:
‘
The plaintiff submits that the
only possible, sustainable, reasonable and businesslike
interpretation applicable to clause 6.16.1
was that the reference to
“normal rate” was a reference to the bulk rate, Rate 6.
This is a normal rate of the defendant
and not a special rate,
payable by municipalities to the defendant for the bulk supply of
water when the defendant renders no other
services than the supply of
bulk water. Such an interpretation, the plaintiff submits, is the
only one that accords with the ESA
read as a whole, the common cause
facts, the prevailing factual matrix and the specific context in
which the ESA was negotiated
and concluded. The interpretation is
consistent with the idea that the defendant’s capital
expenditure and operating costs
are capped by the limited services it
renders to the estate, being only in respect of the bulk supply.
Any other interpretation, the
plaintiff submits, would render the introductory words in clause 6.16
superfluous within the context
of the water supply rates. The bulk
rate was evidently intended and was explicitly justified as being “in
recognition of
the acceptance of responsibility” by the
plaintiff of the duties normally performed by the municipality. It
was precisely
because the defendant recognised that the plaintiff
would assume responsibility for the municipal functions that it
agreed to a
quid pro quo
in the form of supplying the estate
bulk water at the normal rate it supplied other municipalities. In
short, “normal rate”
means the normal rate paid by
municipalities to the defendant for bulk water supply – Rate 6.
Any other interpretation would
mean that no recognition is given to
the fact that the plaintiff is responsible for rendering duties
normally performed by the
municipality and the defendant is in fact
supplying water to another municipality, Mogale City.
The defendant submits that the normal
rate intended was only one of those that could apply to a consumer
that is not a municipality
and that could only be Scale D (being the
catch-all category when the other scales are inapplicable), which
applies when the consumer
does not fall into the categories of Scales
A (agricultural), B (single dwellings), C (sectional titles) or E
(retirement homes).
It is common cause that the estate does not fall
into scale A, B, C or E and it is not a municipality. Thus, the
defendant submits,
the plaintiff could only be supplied at the rate
under Scale D.
I agree with the plaintiff’s
interpretation. Both the language and the purpose of clause 6.16.1
reflect an intention to offer
a
quid pro quo
in exchange for
the plaintiff assuming responsibility for the duties normally
performed by the defendant which is consistent with
the entire tenor
of the ESA as a whole.
A requirement to pay according to
Scale D would not offer any consideration (
quid
) for the
assumption of the duties of the municipality (
quo
). If the
intention was that the plaintiff would pay what it ordinarily would
be expected to pay under the scale typically applicable,
there would
have been no need to introduce clause 6.16 with language recognising
the abnormal or exceptional nature of the arrangement.
The predicate
of the clause is exceptionality or uniqueness, justifying a departure
from the norm, in this case allowing a body
which is not a
municipality to exceptionally benefit from the bulk rate paid by a
municipality because it is performing the functions
of a
municipality. It is the obvious businesslike interpretation flowing
from the language used and the intra-textual context of
the ESA as a
whole.
The interpretation is supported
furthermore by the fact that such charges (the Rand Water tariff plus
10%) will not be punitive
and will be commensurate with the costs of
the services rendered, as required by sections 74 and 76 of the
Systems Act and the
policy in terms of which local governments
determine applicable rates. The interpretation favoured by the
defendant, on the other
hand, will result in the residents of the
estate being charged twice and paying the defendant for services not
rendered by it but
in fact provided to them by the plaintiff. It is
the plaintiff that operates, maintains, repairs and replaces the
infrastructure,
not the defendant. It is the plaintiff which carries
the risk of bad debts or damage, not the defendant. The application
of Scale
D would compensate the defendant for this expenditure and
risk without it bearing it. Payment under Scale D will unjustifiably
enrich the defendant. The patently obvious purpose of clause 6.16 was
to avoid this unjustified enrichment by putting the plaintiff
on the
same footing as other bodies supplied by the defendant with bulk
water without providing the other services or expenditures
normally
recouped by the other tariffs.
The plaintiff is therefore entitled to
the declaration it seeks. There is accordingly no need to grant an
order in relation to the
prayers for rectification or invalidity.’
[46]
The court below made the following order:
‘
[1.] It is ordered in terms of
rule 33(4) that the question of the interpretation of clause 6.16 of
the Engineering Services Agreement
is to be separately decided from
the defendant’s counterclaim.
[2.] It is declared that the reference
in clause 6.16.1 of the Engineering Services Agreement to the “normal
rate of the Municipality”
is a reference to the normal rate
charged for bulk water supply to other local governments as
contemplated in paragraph 6 of annexure
C to the declaration.
[3.] The defendant is directed to
render accounts to the plaintiff in accordance with the bulk charge
rate as provided for in its
schedule of tariffs.
[4.] The defendant’s
counterclaims are postponed
sine die
.
[5.] The defendant is to pay the costs
of the action, such costs to include the costs of employing two
counsel.’
[47]
At the outset of proceedings before us, we enquired of counsel
whether an order in terms of rule 33(4) had been made at the
commencement of proceedings in the court below. We also enquired
whether the order was at the instance of the court or the parties.
There was nothing in the record before us which answered either of
those questions. Counsel informed the court that no such order
was
made by the court below at the commencement of proceedings but that
there had been agreement between counsel, that the issue
identified
in the order made by the court below at the time of the delivery of
the judgment, be adjudicated separately. This did
not appear from the
record. Counsel informed us that there was a pre-trial minute which
recorded that fact. The record did not
contain the pre-trial minute
nor could counsel produce it. Strikingly, as shown in the preceding
paragraph, the court below made
an order, purportedly in terms of
rule 33(4), for the first time when the judgment was delivered.
[48]
Rule 33(4) reads as follows:
‘
If, in any pending action, it
appears to the court
mero motu
that there is a question of law
or fact which may conveniently be decided either before any evidence
is led or separately from any
other question, the court may make an
order directing the disposal of such question in such manner as it
may deem fit and may order
that all further proceedings be stayed
until such question has been disposed of, and the court shall on the
application of any
party make such order unless it appears that the
questions cannot conveniently be decided separately.’
[49]
In D E van Loggerenberg
Erasmus
Superior Court Practice
(2016) 2 ed at D1-436, the author states the following:
‘
The entitlement to seek the
separation of issues was created in the rules so that an alleged
lacuna
in the plaintiff’s case can be tested; or simply
so that a factual issue can be determined which can give direction to
the
rest of the case and, in particular, to obviate the leading of
evidence. The purpose is to determine the plaintiff’s claim
without the costs and delays of a full trial.’ (Footnote
omitted.)
[50]
At D1-436
op cit
the following is stated:
‘
The procedure is aimed at
facilitating the convenient and expeditious disposal of litigation.
The word “convenient”
within the context of the subrule
conveys not only the notion of facility or ease or expedience, but
also the notion of appropriateness
and fairness. It is not the
convenience of any one of the parties or of the court, but the
convenience of all concerned that must
be taken into consideration.’
(Footnotes omitted.)
[51]
This court has repeatedly warned that, when a decision is called for
in terms of rule 33(4), it should be a carefully considered
one. In
Denel (Edms) Bpk v Vorster
2004 (4) SA 481
(SCA), para 3, the
following was said:
‘
Before turning to the substance
of the appeal, it is appropriate to make a few remarks about
separating issues. Rule 33(4) of the
Uniform Rules – which
entitles a Court to try issues separately in appropriate
circumstances – is aimed as facilitating
the convenient and
expeditious disposal of litigation. It should not be assumed that
that result is always achieved by separating
the issues. In many
cases, once properly considered, the issues will be found to be
inextricably linked even though, at first sight,
they might appear to
be discrete. And even where the issues are discrete, the expeditious
disposal of the litigation is often best
served by ventilating all
the issues at one hearing, particularly where there is more than one
issue that might be readily dispositive
of the matter. It is only
after careful thought has been given to the anticipated course of the
litigation as a whole that it will
be possible properly to determine
whether it is convenient to try an issue separately.’
[52]
In
Consolidated News Agencies (Pty) Ltd (In Liquidation) v Mobile
Telephone Networks (Pty) Ltd & another
[2009] ZASCA 130
;
2010
(3) SA 382
(SCA) paras 90-91, the court said the following:
‘
This court has warned that in
many cases, once properly considered, issues initially thought to be
discrete are found to be inextricably
linked. And even where the
issues are discrete, the expeditious disposal of the litigation is
often best served by ventilating
all the issues at one hearing. A
trial court must be satisfied that it is convenient and proper to try
an issue separately.
In the present case counsel for both
parties informed us that notwithstanding a decision in this matter a
number of issues would
still be outstanding. Not all of the remaining
issues were identified, nor do they appear to have occupied the mind
of the court
below.’
As
will appear from the conclusions reached by us and what is stated
later, the circumstances set out in para 91 of
Consolidated
News Agencies,
pertains to the present case.
[53]
From what follows later in this judgment it is clear that
insufficient thought by counsel and the court below was given to
whether rule 33(4) should be resorted to and applied. Piecemeal
litigation which defeats the object of rule 33(4) and consequent
piecemeal appeals are equally to be eschewed.
[54]
Before us, counsel agreed that, in the event of a decision on the
interpretation of clause 6.16 against the Association, the
constitutional and statutory challenge as to the non-application by
the City of the bulk rate was very much alive and a decision
in
relation thereto would be required. Furthermore, there is a dispute
between the parties concerning the City’s pleadings,
namely,
whether they properly raise the issue of the legality of an agreement
by the City on a bulk rate to an entity other than
a municipality.
Put differently, whether the City’s pleadings, properly
construed, challenge the legality of an agreement
outside of rates
approved by the City within statutory and policy boundaries. From our
description of the pleadings set out above,
they certainly do not do
so clearly or elegantly, but they do appear to do so obliquely.
Counsel were agreed that it was not an
issue which the court below,
in terms of the separated issue, was called upon to adjudicate. They
were adamant that all the court
below had been called upon to do was
to interpret clause 6.16 and that the question of the legality of the
tariff was not to be
adjudicated. What is contained in this paragraph
supports the conclusion that the question of separation in terms of
Rule 33(4)
was not given careful consideration. The issues raised in
the pleadings in the court below were inextricably linked. A full
ventilation
of all the issues would have led to expedition and
finality. The conclusions reached later in this judgment prove that
the separation
resorted to by the parties and sanctioned by the court
below will ultimately have the opposite effect.
[55]
Before turning to the interpretation of the ESA and the admissibility
of evidence in relation thereto, we pause to make the
observations
set out in this and a number of successive paragraphs. Academics have
written fairly frequently about the schizoid
nature of the South
African approach to interpretation of contracts. It has been said
that there has been vacillation between the
approach that seeks to
establish the common intention of the parties to a contract and that
of establishing the meaning of words
used by the parties.
[4]
The question repeatedly asked is whether we have a subjective or
objective approach to interpreting written agreements. The objective
approach has been to deduce the intention of the parties from their
‘common stated intention’, whilst a subjective
approach
is one that is focused on the parties’ intention rather than on
the words they employed.
[56]
The more subjective approach favours a more liberal attitude to the
admission of evidence from which, so it is argued, the
intention of
the parties can be determined. This approach, if carried through to
its logical conclusion, might ultimately lead
to the admission of
direct evidence of what the parties intended and what they meant by
the words used. A strict objective approach
focuses principally on
the written text. The difference of approach is demonstrated by
authors on the law of contract who assume
contesting positions. In an
earlier edition of
Christie
[5]
the following is stated at 215:
‘
The key to understanding the
modern law is the concept of the common intention of the parties,
which may be a very different thing
from the actual intention locked
up in the mind of each party at the time of contracting, and even
more different from what, after
a dispute has arisen, each party
honestly or dishonestly maintains his intention then to have been.’
For
the author, the ‘intention of the parties’ meant their
‘common stated intention’.
[6]
This enquiry encompassed their intention as expressed in the words
used in the contract. In a more recent edition of
Christie
,
[7]
with reference to the decision of this court in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012 (4) SA 593
(SCA), the following is stated at 241:
‘
[T]he approach is
objective
in that it entails attributing meaning to the words used by the
parties as they would be understood in context by a reasonable
reader.’
(Emphasis in original.)
[57]
Kerr, on the other hand states the following:
‘
The adoption by some of the
theory that a court is not concerned with the parties’
intention, only with what the words they
chose mean to others who did
not choose them, and who did not make the contract. This . . . is the
most unacceptable theory of
contract.’
[8]
[58]
For a discussion on the two approaches, see D Hutchinson et al
The
Law of Contract in South Africa
(2012)
2 ed at 271
et
seq
.
Commentators have referred to a number of judgments of this court
which they assert vacillate between the two approaches and some
of
which, according to them, are, at times, internally contradictory.
[9]
Commentators also refer to
the respective influences of Roman-Dutch and English Law.
[10]
[59]
The English approach is set out by Lord Hodge in
Wood v Capita
Insurance Ltd
[2017] UKSC 24
, para 10:
‘
The court’s task is to
ascertain the objective meaning of the language which the parties
have chosen to express their agreement.
It has long been accepted
that this is not a literalist exercise focused solely on a parsing of
the wording of the particular clause
but that the court must consider
the contract as a whole and, depending on the nature, formality and
quality of drafting of the
contract, give more or less weight to
elements of the wider context in reaching its view as to that
objective meaning. In
Prenn v Simmonds
[1971] 1 WLR 1381
(1383H-1385D) and in
Reardon Smith Line Ltd v Yngvar Hansen-Tangen
[1976] 1 WLR 989
(997), Lord Wilberforce affirmed the potential
relevance to the task of interpreting the parties’ contract of
the factual
background known to the parties at or before the date of
the contract, excluding evidence of the prior negotiations.’
At
para 3 of
Investors Compensation Scheme v West Bromwich Building
Society
[1997] UKHL 28
, Lord Hoffmann said the following:
‘
The law excludes from the
admissible background the previous negotiations of the parties and
their declarations of subjective intent.
They are admissible only in
an action for rectification. The law makes this distinction for
reasons of practical policy and, in
this respect only, legal
interpretation differs from the way we would interpret utterances in
ordinary life. The boundaries of
this exception are in some respects
unclear. But this is not the occasion on which to explore them.’
The
English approach to interpretation has been described as a unitary
exercise.
[11]
[60]
It is unrealistic to expect of this court or, indeed, of any court,
pronouncements that will end theoretical debates that have
raged over
many decades and settle for all time, terminology that will obviate
confusion. No practical purpose is served by promoting
one of the
aforesaid approaches above the other, nor is any purpose served by
considering whether this court has more recently
adopted a
revolutionary approach to interpretation, as compared to its prior
practice.
[61]
It is fair to say that this court has navigated away from a narrow
peering at words in an agreement and has repeatedly stated
that words
in a document must not be considered in isolation. It has repeatedly
been emphatic that a restrictive consideration
of words without
regard to context has to be avoided.
[12]
It is also correct that the distinction between context and
background circumstances has been jettisoned.
[13]
This court, in
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[2012]
ZASCA 13
;
2012 (4) SA 593
(SCA), stated that the purpose of the
provision being interpreted is also encompassed in the enquiry. The
words have to be interpreted
sensibly and not have an
un-business-like result. These factors have to be considered
holistically, akin to the unitary approach.
[62]
Since this court’s decision in
Endumeni
,
we are seeing a spate of cases in which evidence is allowed to be led
in trial courts beyond the ambit of what is set out in the
preceding
paragraph. We are increasingly seeing witnesses testifying about the
meaning to be attributed to words in legislation
and in written
agreements.
[14]
That is true
of the present case in which, in addition, evidence was led about
negotiations leading up to the conclusions of the
ESA.
[63]
This court has consistently stated that in the interpretation
exercise the point of departure is the language of the document
in
question. Without the written text there would be no interpretive
exercise. In cases of this nature, the written text is what
is
presented as the basis for a justiciable issue. No practical purpose
is served by further debate about whether evidence by the
parties
about what they intended or understood the words to mean serves the
purpose of properly arriving at a decision on what
the parties
intended as contended for by those who favour a subjective approach,
nor is it in juxtaposition helpful to continue
to debate the
correctness of the assertion that it will only lead to self-serving
statements by the contesting parties. Courts
are called upon to
adjudicate in cases where these is
dissénsus
.
As a matter of policy, courts have chosen to keep the admission of
evidence within manageable bounds. This court has seen too
many cases
of extensive, inconclusive and inadmissible evidence being led. That
trend, disturbingly, in on the rise.
[64]
This court’s more recent experience has shown increasingly that
the written text is being relegated and extensive inadmissible
evidence has been led. The pendulum has swung too far. It is
necessary to reconsider the foundational principles set out in
KPMG
Chartered Accountants (SA) v Securefin Ltd & another
[2009]
ZASCA 7
;
2009 (4) SA 399
(SCA). In
KPMG
this court was
concerned about the extent of evidence led in relation to the
interpretation of written texts. This is apparent from
para 38 in
which the following appears:
‘
Much of the evidence dealt with
the interpretation of the verification contract. Indeed, each party
called an expert on the issue
and they testified for about 14 days on
the interpretation of the contract. The factual witnesses, too, spent
most of their time
dealing with interpretation issues. The parties
were able to create a record consisting of 6600 pages of evidence and
exhibits.
It is difficult to understand why the trial judge permitted
the evidence or the cross-examination or overruled the objection to
the leading of some of the evidence. Obviously, courts are fully
justified in ignoring provisionally objections to evidence if
those
objections interfere with the flow of the case. It is different if a
substantive objection is raised which could affect the
scope of the
evidence that will follow. In such a case a court should decide the
issue and not postpone it. It is accordingly necessary
to say
something about the role of evidence and, more particularly, expert
evidence in matters concerning interpretation.’
[65]
The next paragraph in
KPMG
is of particular importance.
‘
First, the integration (or
parol evidence) rule remains part of our law.
[15]
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 (
Johnson
v Leal
1980 (3) SA 927
(A)
at 943B). Second, interpretation is a matter of law and not of fact
and, accordingly, interpretation is a matter for the court
and not
for witnesses (or, as said in common-law jurisprudence, it is not a
jury question: Hodge M Malek (ed)
Phipson
on Evidence
(16 ed 2005)
paras 33-64). Third, the rules about admissibility of evidence in
this regard do not depend on the nature of the document,
whether
statute, contract or patent (
Johnson
& Johnson (Pty) Ltd v Kimberly-Clark Corporation and
Kimberly-Clark of South Africa (Pty) Ltd
1985 BP 126 (A) ([1985] ZASCA 132 (at www.saflii.org.za)). 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
”
(
Delmas Milling Co Ltd v Du
Plessis
1955 (3) SA 447
(A)
at 455B-C). The time has arrived for us to accept that there is no
merit in trying to distinguish between “background
circumstance” 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. (See
Van der
Westhuizen v Arnold
2002
(6) SA 453
(SCA) ([2002]
4 All SA 331)
paras 22 and 23, and
Masstores
(Pty) Ltd v Murray & Roberts Construction (Pty) Ltd & another
[2008] ZASCA 94
;
2008 (6) SA 654
(SCA) para
7.).’ (Our emphasis.)
[66]
The idea expressed in
Delmas
and in
KPMG
,
that extrinsic evidence should be used as conservatively as possible,
has been criticised.
[16]
Insofar as the admonition to use extrinsic evidence as conservatively
as possible is concerned, this court, in
KPMG
was intent on ensuring that extrinsic evidence to contextualise a
document was just that, and did not extend beyond established
parameters. It is clear that our courts have never permitted parties
to testify about how they understood the words used in written
text.
The parol evidence rule, as expounded by Corbett JA in
Johnsons
v Leal
1980 (3) SA 927
(A) at 943B, namely, to prevent a party from
altering, by the production of extrinsic evidence, the recorded terms
of a contract
in order to rely upon the altered contract, continues
to be a part of our law.
[17]
As explained by
Christie
7 ed at 227, in
Marquard
& Co v Bicard
1921 AD 366
at 373, Solomon JA adopted one of the best-known English
formulations of the rule as follows:
‘
The rule of the law of evidence
upon which he relies is nowhere more clearly stated than by Lord
Denman in the well-known case of
Goss v Nugent
(5 B & Ad
54): - “By the general rules of the common law if there be a
contract which has been reduced into writing, verbal
evidence is not
allowed to be given of what passed between the parties either before
the written instrument was made or during
its preparation, so as to
add to or subtract from or in any manner to vary or qualify the
written contract”.’
As
stated above, English law maintains the position that evidence of
negotiations is inadmissible. More about this later.
[67]
In
KPMG
, at para 40, this court, in dealing with the
admissibility of expert evidence in relation to the interpretation of
documents, said
the following:
‘
[T]he undesirable practice
keeps growing and courts make no effort to curtail it. An expert may
be asked relevant questions based
on assumptions or hypotheses put by
counsel as to the meaning of a document. The witness may not be asked
what the document means
to him or her. The witness (expert or
otherwise) may also not be cross-examined on the meaning of the
document or the validity
of the hypothesis about its meaning. Dealing
with an argument that a particular construction of a document did not
conform to the
evidence, Aldous LJ quite rightly responded with, “So
what?” (
Scanvaegt International A/S v Pelcombe Ltd
1998
EWCA Civ 436).
All this was sadly and at some cost ignored by all.’
[68]
In
KPMG
this court, as
we are now, was expressing judicial frustration at how hitherto
recognised inadmissible evidence, which, in any event,
is invariably
inconclusive, was being led in support of a party’s contentions
in relation to written text. The criticism
set out above, in our
view, is unjustified.
[69]
Before us it was not suggested that the foundational principles set
out in
KPMG
no
longer apply or should be abandoned. Nor is such a suggestion
sustainable. Those principles continue to be applicable.
Endumeni
,
at 603F, reaffirmed those principles and did not detract from
them.
[18]
[70]
Returning to the facts of the present case, one is constrained to
accept that for as long as the claim for rectification was
extant,
extrinsic evidence contradicting the written text could be led. In
this regard, see S W J van der Merwe et al
Contract
General Principles
(2012) 4 ed at para 5.6 at
153, et seq. See also G D Bradfield
Christie’s
Law of Contract in South Africa
(2016) 7 ed
at 384-385. However, as pointed out above, at a particular moment of
Croswell’s cross-examination it was quite
clear that the claim
for rectification was abandoned. Before us, counsel on behalf of the
Association accepted that this was so.
[71]
As appears from the evidence set out earlier, witnesses who testified
were wrongly asked about how they understood parts of
the ESA and, in
particular, clause 6.16. They were repeatedly asked to interpret
parts of the agreement. That notwithstanding,
there was acceptable
evidence that provided context to the ESA.
[19]
Clause 6.16 has to be interpreted in relation to the other material
clauses and with regard to the factual matrix underlying its
conclusion, including its purpose. It has to be interpreted sensibly
with a business-like result. We will, in due course, deal
with the
admissibility of evidence concerning negotiations and the exchanges
between the parties during that process.
[72]
The evidence concerning the history of how the development originated
and the manner in which the infrastructure, both externally
and
internally, came about as well as how the City was persuaded to
provide water services, is material. It was established that
the City
was willing to supply water services to the development on the
condition that certain infrastructural costs were met by
the
developer. Much was sought to be made of this fact in justifying the
contention that it would only be fair and it made business
sense to
conclude that the ‘normal rate’ referred to in clause
6.16 was the bulk rate for municipalities. Against that,
for
contextual purposes, one has to take into account that the City’s
insistence, at the outset, that in order for it to
provide water
services the developer would have to pay for infrastructural costs
was justifiable, on the basis that the development
was located beyond
the urban edge and the City’s priority area. In addition, it is
not insignificant that the City undertook
to maintain the pipeline
and the external reservoir, after they had been installed.
[73]
It is true that the introductory words to clause 6.16, namely, ‘in
recognition of the acceptance of responsibility by
the s 21 company
of the duties normally performed by the Municipality. . .’, is
superficially problematic for the City. It
implies that there was a
quid pro quo
, and
provides some impetus to the contention on behalf of the Association
that a reduced rate was such a
quid pro quo
.
This, however, ignores what is set out in the preceding paragraphs,
and that the City did relent to some degree and did not impose
a
sewage charge. Furthermore, one has to bear in mind the evidence of
Croswell that the ESA was ultimately an adaptation of a standard
form
contract. That has relevance and might explain why clause 6.16 is not
a model of precision.
[74]
The reasoning by Murphy J, based on the submissions on behalf of the
Association, did not give adequate consideration to the
words ‘normal
rate of the municipality’. On the contrary, the reasoning and
conclusions have the effect of negating
those words. Far from the
City’s contention on the interpretation of clause 6.16 leading
to a non-practical or absurd result,
it makes sense that one would,
in deciding which of the City’s approved rates applied to the
development, look to which of
the categories within the rate of
tariffs is the one that fits. Simply put, one would look to see which
of the categories is factually
applicable.
[75]
The high-water mark of the Association is that tariff 6 applies
because it installed the relevant infrastructure and it is
therefore
‘like a municipality’. There is no such category of
consumer and to force individual house owners, who are
the ultimate
consumers, into that category is a distortion.
[76]
Insofar as the admissibility of evidence in relation to negotiations
is concerned, this court has recently, in
Van
Aardt v Galway
2012 (2) SA 312
(SCA), para 9, with reference to
Van
Wyk v Rottcher’s Saw Mills (Pty) Ltd
1948 (1) SA 983
(A) at 991, reaffirmed that evidence of the intention
of the parties of their prior negotiations is inadmissible. In
Delmas
Milling Co. Ltd v Du Plessis
1955 (3) SA 447
(A), at 454, the court excluded, as a general rule,
reference to ‘actual’ negotiations and ‘similar
statements’.
It is true that at 455A-C there is a suggestion
that ‘conceivably’, in contractual cases where, after
regard is had
to surrounding circumstances, the ambiguity in a
written text persisted, one could have regard to what passed between
the parties.
It must be understood that this statement followed on
what was understood to be admissible in relation to testamentary
documents.
It is also true that in
Coopers
& Lybrandt & others v Bryant
[1995] ZASCA 64
;
1995
(3) SA 761
(A), at 768D-E, the passage from
Delmas
at 455A-C is cited as support for the view that evidence of
negotiations could, in the face of enduring ambiguity, be
admitted.
[20]
[77]
In our view,
Van
Aardt
and
Van
Wyk
should be followed. It would be in line with the parol evidence rule
which we imported and have maintained and it is consonant
with the
modern approach to interpretation of contracts in English law, the
development of which mirrors developments in our law.
Allowing
evidence in relation to negotiations will see further extensive
evidence being led and will have the effect of minimising
the words
the parties have chosen to employ.
Endumeni
rightly emphasises the significance of the words the parties have
chosen to record their agreement, though not above context.
[21]
Permitting evidence of negotiations will lead to further uncertainty.
The words, as an objective measure, are elevated above the
partisan
positions of parties in negotiations and litigation.
[78]
For the reasons set out above, it follows that the question of
interpretation is answered in favour of the City and that the
appeal
therefore has to be upheld. In respect of costs it is, in our view,
proper to make no order in relation thereto. There are
remaining
issues, including the constitutional statutory challenge by the
Association and the City’s counterclaim in relation
to the
amounts which it claims is owing, based on the tariff it contends is
applicable. There is the related question of whether
Scale B or Scale
D should be applied. A costs order, comprising all the costs incurred
up until that point, should redound to the
benefit of the ultimately
successful party.
[79]
Lastly, we initially considered reserving the costs of the present
appeal but, upon reflection, it appears to us to be just
to award the
City the costs.
[80]
The following order is made:
1 The appeal is upheld
with costs including the costs of two counsel and the issues that
remain, beyond that dealt with in para
2 of this order, are remitted
to the court below for further hearing.
2 The order of the court
below is set aside and substituted with the following:
‘
1.
It is declared that the reference in clause 6.16.1 of the Engineering
Services Agreement to the “normal rate of a municipality”
is not a reference to tariff 6 of the Tshwane Schedule of Tariffs,
attached as annexure “C” to its declaration.
2.
Costs of proceedings thus far are reserved, pending final
determination of the outstanding issues.’
__________________
M
S Navsa
Acting
Deputy President
__________________
S
P Mothle
Acting
Judge of Appeal
Appearances:
For
the Appellant: T Strydom SC (with him T Mkhwanazi)
Instructed
by:
Diale
Mogashoa Attorneys, Pretoria
Phatsoane
Henney Attorneys, Bloemfontein
For
the Respondent: K W Lüderitz SC (with him G W Amm)
Instructed
by:
Brazington
Shepperson & McConnell, Pretoria
Symington
De Kok, Bloemfontein
[1]
A local authority appears to have ultimate authority in relation to
the supply of water. In this regard see s 6 read with
s 1
of the
Water Services Act 108 of 1997
.
[2]
The relevant parts of s 21 of the Companies Act 61 of 1973 provides:
‘
(1) Any association –
(a)
formed or to be
formed for any lawful purpose;
(b)
having the main
object of promoting religion, arts, sciences, education, charity,
recreation, or any other cultural or social
activity or communal or
group interest;
(c)
which intends to
apply its profits (if any) or other income in promoting its said
main object;
(d)
which prohibits the
payment of any dividend to its members; and
(e)
which complies with
the requirements of this section in respect to its formation and
registration,
may be incorporated as a company
limited by guarantee.’
See
also
s 8
of the
Companies Act 71 of 2008
read with Schedule 1
thereof and see P Delport
Henochsberg on the
Companies Act 71 of
2008
vol 1, Service Issue 17 at 54(6) – 54(7).
[3]
Section 75A(3)
of the
Local Government: Municipal Systems Act 32 of
2000
reads as follows:
‘
(3) After a
resolution contemplated in subsection (2) has been passed, the
municipal manager must, without delay –
(a)
conspicuously
display a copy of the resolution for a period of at least 30 days at
the main administrative office of the municipality
and at such other
places within the municipality to which the public has access as the
municipal manager may determine;
(b)
publish in a
newspaper of general circulation in the municipality a notice
stating –
(i) that a resolution as
contemplated in subsection (2) has been passed by the council;
(ii) that a copy of the
resolution is available for public inspection during office hours at
the main administrative office of
the municipality and at the other
places specified in the notice; and
(iii) the date on which
the determination will come into operation; and
(c)
seek to
convey the information referred to in paragraph
(b)
to the
local community by means of radio broadcasts covering the area of
the municipality.’
[4]
See the cases referred to by F Myburgh ‘Thomas Kuhn’s
structure of scientific revolutions, paradigm shifts, and crises:
Analysing recent changes in the approach to contractual
interpretation in South African Law’
SALJ
(2017)
134.
[5]
R H Christie and G B Bradfield
Christie’s
The Law of Contract in South Africa
(2011)
6 ed.
[6]
Ibid 215.
[7]
G D Bradfield
Christie’s
Law of Contract in South Africa
(2016)
7 ed.
[8]
A J Kerr
The
Principles of the Law of Contract
(2002)
6 ed at 401.
[9]
See F Myburgh ‘Thomas Kuhn’s structure of scientific
revolutions, paradigm shifts, and crises: Analysing recent changes
in the approach to contractual interpretation in South African Law’
SALJ
(2017)
134 at 514 and also C Lewis ‘Interpretation of Contracts’
in R Zimmerman and D Visser
Southern
Cross: Civil Law and Common Law in South Africa
(1996)
ed at 195-210.
[10]
See F Myburgh,
op cit
,
at 522 where the following appears:
‘
For example, there was an
ongoing debate whether a contract was based on the concurring
intentions of the parties (under influence
of Roman-Dutch law) or
rather on a reasonable reliance that a contract had been concluded
(the influence of English law).’
[11]
Lord Clarke SCJ in
Rainy
Sky SA & others v Kookmin Bank
[2011] UKSC 50
, para 21 and
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) SA 593
(SCA), para 19.
[12]
See
Swart en ‘n ander
v Cape Fabrix (Pty) Ltd
1979 (1) SA 195
(A) at 202C where the following is stated:
‘
Wat natuurlik aanvaar moet
word, is dat, wanneer die betekenis van woorde in ‘n kontrak
bepaal moet word, die woorde onmoontlik
uitgeknip en op ‘n
skoon stuk papier geplak kan word en dan beoordeel moet word om die
betekenis daarvan te bepaal. Dit
is vir my vanselfsprekend dat ‘n
mens na die betrokke woorde moet kyk met inagneming van die aard en
opset van die kontrak,
en ook na die samehang van die woorde in die
kontrak as geheel.’
‘
What, of course, has to be
accepted, is that, when the meaning of words in a contract has to be
interpreted, the words cannot
simply be cut out and pasted on a
clean sheet of paper and to then evaluate what their meaning should
be. In my view, it goes
without saying that one has to look at the
relevant words, taking into account the context and purpose of the
contract, as well
as the contract as a cohesive whole.’ (My
translation.)
See
also
Coopers & Lybrand & others v Bryant
[1995] ZASCA 64
;
1995 (3) SA
761
(A) at 767H-I.
[13]
KPMG Chartered Accountants
(SA) v Securefin Ltd & another
[2009] ZASCA 7
;
2009 (4) SA 399
(SCA), at 409I-410A.
[14]
In this court term, for example, in
The
Provincial Government of the Western Cape: Department of Social
Development v Craig Charles Barley & others
(1220/2017)
[2018] ZASCA 166
(30 November 2018), a witness testified
at length in relation to the interpretation of legislation and his
understanding of the
meaning of provisions of the applicable
statutory regime. A preceding expert notice to that effect was
filed. See paras 15-18.
[15]
The essence of the parol evidence rule, is explained in G B
Bradfield
Christie’s
Law of Contract in South Africa
(2016)
7 ed at 226 as follows:
‘
Despite its difficulties, it
serves the important purposes of ensuring that where the parties
have decided that their contract
should be recorded in writing and
that such contract shall be the sole, complete record of their
agreement, their decision will
be respected, and the resulting
document, or documents, will be accepted as the sole evidence of the
terms of the contract.’
At
page 228, the rule is qualified as follows:
‘
One does not need a very
fertile imagination to see how, necessary as the rule is, it can
lead to injustice if rigorously applied,
by excluding evidence of
what the parties really agreed. It has therefore been the courts’
constant endeavour to prevent
the rule being used as an engine of
fraud by a party who knows full well that the written contract does
not represent the true
agreement. In the nature of things, this
endeavour to achieve a fair result without destroying the advantages
inherent in written
contracts has led to some decisions that are
difficult to reconcile. Perhaps the best way to look at the rule is
to see it as
a backstop that comes into operation only in the
absence of some more dominant rule, giving way to the rules
concerning misrepresentation,
fraud, duress, undue influence,
illegality or failure to comply with the terms of a statute,
mistake, and rectification. If it
did not do so, none of these rules
would apply to written contracts, which would be absurd. In all such
cases, of course, the
burden is on a party who has signed a written
contract to displace the maxim
caveat subscriptor
by proving
lack of the necessary
animus
.’
For
a useful discussion on the parol evidence rule, including criticisms
relating to its application and exceptions thereto, see
S W J van
der Merwe et al
Contract General Principles
(2012) 4ed at 148
et seq.
[16]
F Myburg
op cit
at 528-532. It is also at odds with the view of Kerr.
[17]
Notwithstanding the criticisms referred to in fn 11.
[18]
With reference to
Bastian
Financial Services (Pty) Ltd v General Hendrik Schoeman Primary
School
2008 (5) SA 1
(SCA)
and the authorities there collected.
[19]
In relation to the approach to be followed in applying extrinsic
evidence regarding context when the language of a document is
ambiguous, see
Coopers and
Lybrand
op cit fn 4, at
768C-E.
[20]
This of course find support by commentators in favour of the
subjective approach – like Myburgh and Kerr.
[21]
See 603F-604A and 604E-F.