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Dikala Plant hire CC v Bela Bela Local Municipality and Another (95187/2015) [2016] ZAGPPHC 1225 (9 November 2016)

82 Reportability
Contract Law
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Brief Summary

Contract — Service Level Agreement — Validity and interpretation — Applicant sought declarations regarding the validity of a Service Level Agreement (SLA) with the First Respondent and the cancellation of a Joint Venture Agreement (JV) with the Second Respondent — First Respondent attempted to terminate the SLA based on a clause deemed void for vagueness — Court held that the SLA remained in effect and the First Respondent was obligated to make payments to the Applicant, as the Second Respondent had no rights under the SLA — First Respondent's termination of the SLA was invalid and constituted mala fide conduct.

Comprehensive Summary

Summary of Judgment


Introduction


This was a motion application in the Gauteng Division of the High Court, Pretoria, in which the applicant sought primarily declaratory relief and specific performance arising from two written commercial agreements connected to a municipal procurement arrangement.


The parties were Dikala Plant Hire CC (the applicant), Bela Bela Local Municipality (the first respondent), and Salimi Barui Trading (Pty) Ltd (the second respondent). The applicant contracted directly with the municipality under a Service Level Agreement, and separately concluded a Joint Venture Agreement with the second respondent concerning aspects of performance and revenue-sharing.


Procedurally, the matter came before the High Court on the papers. A central feature of the respondents’ opposition was an attempt to re-characterise the contracting parties under the Service Level Agreement by reference to the Joint Venture Agreement, including an effort by the first respondent to obtain rectification of the Service Level Agreement. The second respondent did not pursue rectification and, at argument, did not support the first respondent’s rectification contention.


The dispute concerned the validity and effect of a termination clause (clause 10) in the Service Level Agreement, whether the municipality had lawfully cancelled that agreement, whether payment was due to the applicant, and whether the applicant had validly cancelled the Joint Venture Agreement on the basis of repudiation by the second respondent.


Material Facts


The court treated as central the existence of two distinct written agreements, each containing so-called “whole agreement” clauses, recording that the written document constituted the complete agreement between the relevant parties. The first was a Service Level Agreement concluded on 4 August 2014 between the applicant and the first respondent (the municipality). The second was a Joint Venture Agreement between the applicant and the second respondent.


In terms of the Service Level Agreement, the applicant undertook to supply a full maintenance lease for the municipality’s pool vehicles. The remuneration structure under the Service Level Agreement consisted of two components: payment for the supply of the vehicle fleet, and payment for administrative services rendered under the arrangement.


The Joint Venture Agreement, by contrast, allocated responsibilities and benefits between the applicant and the second respondent. It recorded that the applicant would supply the entire fleet, that the vehicles would remain the property of the applicant, and that the applicant would receive the amounts due from the municipality for the vehicle-supply component. It further provided that the applicant and second respondent would together administer the fleet and would share the administration fees equally.


A dispute then emerged involving the municipality’s payment obligations. The municipality adopted the stance that, because of the Joint Venture Agreement, the applicant and the second respondent (as an alleged joint venture) were together the municipality’s counterparty under the Service Level Agreement. On that basis, the municipality contended it could withhold payment to the applicant unless payment was made jointly to the applicant and second respondent.


On 30 July 2015, the municipality purported to terminate the Service Level Agreement relying on clause 10, with termination stated to take effect on 31 January 2016. The applicant contended clause 10 was void for vagueness and that the purported termination was therefore ineffective.


As between the applicant and the second respondent, the applicant’s case (accepted by the court on the papers) was that the second respondent had arrogated to itself the position of a partner to the Service Level Agreement and had approached the municipality on the basis that amounts payable under the Service Level Agreement should be paid to the second respondent. The applicant characterised this as conduct inconsistent with the second respondent being bound only by the Joint Venture Agreement, and as an unequivocal indication that the second respondent did not regard itself bound by the Joint Venture Agreement.


On 7 October 2015, the applicant purported to cancel the Joint Venture Agreement, accepting what it alleged to be the second respondent’s repudiation.


Legal Issues


The court was required to determine, primarily as questions of law and the application of legal principles to largely common-cause contractual facts, the following issues.


The first issue was whether clause 10 of the Service Level Agreement was so uncertain that it was void for vagueness, and, if so, whether the municipality’s attempted termination of the Service Level Agreement under that clause was legally ineffective.


The second issue was whether the Service Level Agreement should be treated as having the applicant alone as counterparty, as its text indicated, or whether it should be treated (or rectified) to reflect a different contracting arrangement involving the second respondent or a joint venture. This raised an issue of rectification and the interaction between the two written agreements.


The third issue was whether the municipality was entitled to withhold payment or insist on joint payment to the applicant and second respondent, given the structure of the Service Level Agreement and Joint Venture Agreement and the absence of any direct contractual nexus between the municipality and the second respondent on the documents.


The fourth issue was whether the second respondent’s conduct constituted repudiation of the Joint Venture Agreement, entitling the applicant to cancel it, and whether the court should confirm that cancellation. This involved applying the legal test for repudiation to the conduct evidenced on affidavit.


Court’s Reasoning


The court began from the premise that the matter involved two separate written instruments, each with a whole agreement clause, and that the parties’ rights and obligations had to be assessed with close regard to the terms actually recorded in those documents. The respondents’ attempt to “import” terms into the Service Level Agreement by reference to the Joint Venture Agreement was approached critically because, on the face of the documents, the Service Level Agreement and the Joint Venture Agreement had different parties, different aims, and different allocations of rights and obligations.


On rectification, the court accepted the trite principle that rectification requires proof that the parties to the document sought to be rectified intended to be bound by the agreement as rectified. Applied to the Service Level Agreement, the municipality would therefore need to show that the applicant and the municipality (as parties to that agreement) intended that the Service Level Agreement should reflect that the applicant and second respondent acted as joint venture partners in that agreement. The court considered it significant that only the first respondent pursued rectification and that the second respondent neither brought its own rectification application nor supported the rectification claim at argument. In the court’s assessment, granting rectification would also create untenable and irreconcilable differences between the Service Level Agreement and the Joint Venture Agreement, because the Joint Venture Agreement allocated the vehicle-supply component to the applicant alone while sharing only the administrative component between the applicant and the second respondent. This structural inconsistency reinforced the conclusion that no direct rights and obligations arose between the municipality and the second respondent, and that any linkage between the second respondent and the municipal contract operated only through the applicant.


Turning to the municipality’s non-payment stance, the court questioned the legitimacy of the municipality’s refusal to pay the applicant by insisting on joint payment to the applicant and second respondent. The court’s reasoning proceeded from the contractual allocation in the Service Level Agreement, read with the Joint Venture Agreement, that the municipality’s counterparty under the Service Level Agreement was the applicant alone. The existence of a joint venture arrangement for internal sharing between the applicant and second respondent did not, on the court’s approach, alter the municipality’s contractual obligations under the Service Level Agreement.


The court then dealt directly with clause 10 of the Service Level Agreement. It held that clause 10 was inchoate, could not reasonably be interpreted, and was void for vagueness. The municipality’s reliance on authority cautioning that invalidity should be a last resort did not persuade the court to “overlook” words in clause 10 (treat them as pro non scripto) in order to make it workable. The court rejected this interpretive approach on the facts, and concluded that the attempted termination under clause 10 was accordingly of no force and effect, leaving the Service Level Agreement in full force. The court also rejected the municipality’s contention that it was placed in an “invidious position” by disputes between the applicant and second respondent; it held that such disputes should not have affected the municipality’s duty to perform under the Service Level Agreement, including its obligation to pay.


As to the Joint Venture Agreement, the second respondent argued that the repudiation issue could not be decided on affidavit because of factual disputes, and sought to tie the repudiation analysis to the contention that the joint venture (rather than the applicant) was intended to be the service provider under the Service Level Agreement. The court did not accept this, reasoning that the agreements had distinct purposes and that, on the papers, the second respondent could not plausibly contend it would provide the services contemplated in the Service Level Agreement.


Applying the repudiation test, the court relied on authority stating that repudiation is established where conduct, fairly interpreted, exhibits a deliberate and unequivocal intention no longer to be bound. On the affidavits, the court found that the second respondent’s conduct—approaching the municipality as if it were entitled to payment under the Service Level Agreement and asserting a status inconsistent with the Joint Venture Agreement—could “hardly” be said not to constitute repudiation. The applicant’s cancellation of the Joint Venture Agreement by accepting that repudiation was therefore treated as proper, and the court confirmed the cancellation.


Outcome and Relief


The court granted the relief sought by the applicant in full.


It declared that clause 10 of the Service Level Agreement dated 4 August 2014 was void for vagueness, and declared that the Service Level Agreement remained of full force and effect and had not been lawfully cancelled by the municipality.


The court ordered the municipality to comply with its obligations under the Service Level Agreement, including immediate payment of R8 673 359.88 to the applicant together with interest at 9% per annum a tempore morae, and to make future payments falling due under the Service Level Agreement into the applicant’s nominated bank account.


It further confirmed the cancellation of the Joint Venture Agreement between the applicant and the second respondent.


Costs were awarded against the first and second respondents jointly and severally, the one paying the other to be absolved.


Cases Cited


CTP Ltd v Argus Holdings Ltd 1995 (4) SA 774 (A)


Haviland Estates (Pty) Ltd and Another v McMaster 1969 (2) SA 312 (A)


Lewis v Oneanate (Pty) Ltd 1992 (4) SA 811 (A)


Highveld 7 Properties (Pty) Ltd v Bailes 1999 (4) SA 1307 (SCA)


OK Bazaars (1929) Ltd v Grosvenor Buildings (Pty) Ltd 1993 (3) SA 471 (A)


Legislation Cited


No legislation was cited in the judgment.


Rules of Court Cited


No rules of court were cited in the judgment.


Held


The court held that clause 10 of the Service Level Agreement was void for vagueness, with the result that the municipality’s purported termination relying on that clause was legally ineffective and the Service Level Agreement remained binding and enforceable.


It held further that the municipality was not entitled to withhold payment to the applicant on the basis that payment should instead be made jointly to the applicant and the second respondent, given the contractual structure reflected in the written agreements and the absence of any direct contractual rights and obligations between the municipality and the second respondent.


The court also held that the second respondent’s conduct, as reflected in the affidavits, constituted repudiation of the Joint Venture Agreement, entitling the applicant to cancel it, and it confirmed that cancellation.


LEGAL PRINCIPLES


A contractual term may be declared void for vagueness where it is inchoate and cannot reasonably be interpreted so as to ascertain the parties’ obligations with sufficient certainty. While invalidity is approached as a measure of last resort, a court is not obliged to render a clause operative by disregarding problematic words (pro non scripto) where the clause remains incapable of sensible interpretation on the text before it.


A party seeking rectification bears the burden of showing that the parties to the document intended to be bound by the contract in the form contended for, and that the written instrument fails to record that common intention. Rectification cannot properly be used to reconfigure contractual relationships in a manner that creates irreconcilable conflict with other operative agreements defining different roles, rights, and obligations.


Repudiation is determined objectively: the question is whether the conduct, fairly interpreted, demonstrates a deliberate and unequivocal intention no longer to be bound by the contract. Where repudiation is established, the innocent party may accept it and cancel the agreement, and a court may confirm that cancellation where the contractual and factual foundation is established on the papers.

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[2016] ZAGPPHC 1225
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Dikala Plant hire CC v Bela Bela Local Municipality and Another (95187/2015) [2016] ZAGPPHC 1225 (9 November 2016)

THE HIGH COURT OF SOUTH
AFRICA
GAUTENG DIVISION,
PRETORIA
CASE
NUMBER: 95187/2015
DATE
OF HEARING: 24 OCTOBER 2016
DATE
OF JUDGMENT: 9 NOVEMBER 2016
REPORTABLE
OF
INTEREST TO OTHER JUDGES
In
the matter between:
DIKALA
PLANT HIRE
CC
Applicant
and
BELA
BELA LOCAL
MUNICIPALITY
First
Respondent
SALIMI
BARUI TRADING (PTY)
LTD
Second
Respondent
JUDGMENT
AVVAKOUMIDES,
AJ
[1]
The Applicant applied on motion for the following relief:
[1.1] declaring that
clause 10 of the Service Level Agreement between the Applicant and
the First Respondent dated 4 August 2014
is void for vagueness.
[1.2] declaring that the
Service Level Agreement between the Applicant and the First
Respondent dated 4 August 2014 is of full force
and effect, and has
not in law been cancelled by the actions of the First Respondent.
[1.3] directing the First
Respondent to comply with all its obligations in terms of the Service
Level Agreement concerned, in particular
by making payment of the
amount of RB 673 359.88 to the Applicant, together with interest at a
rate of 9% per annum a tempore morae
and making payment of all
amounts that will in future fall due in terms of the said agreement
to the Applicant into the bank account
nominated for that purpose by
the Applicant.
[1.4] an order confirming
the cancellation of the Joint Venture Agreement between the Applicant
and the Second Respondent.
[1.5] that the costs of
the application be paid by the First Respondent and the Second
Respondent jointly and severally, the one
to pay the other to be
absolved.
[2]
The application relates to two written agreements. Firstly, a Service
Level Agreement concluded between the Applicant and the
First
Respondent and secondly a Joint Venture Agreement concluded between
the Applicant and the Second Respondent.
[3]
Both agreements contain so-called "whole agreement" clauses
and provide that the sole record of the agreement between
the
respective parties is the agreements themselves.
[4]
The Respondents, in their papers, sought to import new terms into the
Service Level Agreement, contending that as a result of
the Joint
Venture Agreement between the Applicant and the Second Respondent,
the Applicant and the Second Respondent as a joint
venture, is in
fact, the First Respondent's counterpart to the Service Level
Agreement, and that the Applicant is not the counterpart
concerned on
its own. In support of this contention, only the First Respondent
brought an application for the rectification of
the Service Level
Agreement. The Second Respondent did not apply for rectification of
the Service Level Agreement or the Joint
Venture Agreement. It is
noteworthy that the Second Respondent did not support the claim for
rectification during the argument
of this application.
[5]
It is trite that a claim for rectification can only succeed if the
party seeking rectification is able to show from the document
sought
to be rectified, that the parties thereto had the intention to be
bound to the document, as rectified. In this case, the
First
Respondent would have to show that with reference to the Joint
Venture Agreement, that the Applicant and the Second Respondent
had
intended to act as joint venture partners in the Service Level
Agreement.
[6]
It was thus contended by the First and the Second Respondents that
the existence of the Joint Venture Agreement results from
the
Applicant and the Second Respondent being joint parties to the
Service Level Agreement, and not the Applicant alone, as appears
from
the Service Level Agreement, this despite the terms of the Service
Level Agreement and the Joint Venture Agreement clearly
reflecting
the parties to each agreement.
[7]
The Service Level Agreement provides that the Applicant shall supply
to the First Respondent full maintenance lease for the
municipal pool
vehicles. The Service Level Agreement provides for two components of
remuneration that is payable to the Applicant,
namely firstly,
payment for the supply of the pool of vehicles themselves and
secondly, payment for the administrative services
rendered in terms
of the Service Level Agreement (hereinafter referred to as "the
SLA").
[8]
The Joint Venture Agreement (hereinafter referred to as "the
JV") expressly provides that the Applicant would supply
the
entire fleet of vehicles, that the vehicles would remain the property
of the Applicant and the Applicant would be paid the
amount due by
the First Respondent for the supply of the vehicles (i.e. the first
component of remuneration referred to above).
The Applicant and the
Second Respondent would together administer the fleet and would
equally share the administration fees (i.e.
the second component of
the remuneration referred to above).
[9]
It must follow that if rectification of the SLA were to be granted it
would lead to untenable and irreconcilable differences
between the
Service Level Agreement and the Joint Venture Agreement. The simple
reason is that each agreement has a different aim
in mind and the
rights and obligations of the parties to the one agreement are not
necessarily equal to the rights and obligations
of the parties to the
other agreement. This being the case it must further follow that no
rights and obligations arose between
the First Respondent and the
Second Respondent and the only relationship between them was through
the Applicant.
[10]
That being the case it is questionable whether the First Respondent
may refuse to make payment of the contract price to the
Applicant, by
insisting that the payment should be made to the Applicant and the
Second Respondent jointly. This much was contended
by the First
Respondent in its papers.
[11]
On 30 July 2015, the First Respondent sought to terminate the SLA by
relying on the provisions of clause 10 thereof, such termination

purporting to take effect on 31 January 2016. Clause 10 appears to be
inchoate and cannot reasonably be interpreted and after
consideration, it is my view that such clause is indeed void for
vagueness. It must follow that the First Respondent's attempt to

terminate the SLA by relaying on clause 10 is of no force and effect.
This being the case, the Applicant would accordingly be entitled
to
the relief sought in prayers 1 and 2 of the Notice of Motion. I will
deal with this more fully hereunder.
[12]
The Applicant contended further that from the common cause facts
contained in the various affidavits, the Second Respondent
arrogated
to itself the position of a partner to the Service Level Agreement,
whereas the Second Respondent has no rights and obligations
arising
from that agreement, and its rights and obligations instead arise
from the JV alone. The Applicant contended further that,
by
arrogating to itself the rights of a partner to the SLA, instead of
limiting itself to the provisions of the JV, the Second
Respondent
unequivocally declared through its words and actions that it did not
regard itself bound by the terms and provisions
of the JV, and thus
repudiated the JV.
[13]
In doing so, the Second Respondent caused damage to the Applicant
resulting,
inter alia,
in
the First Respondent's unlawful refusal to make payment of the
contract price to the Applicant. The Applicant terminated the
Joint
Venture Agreement on 7 October 2015 (accepted the repudiation) and
contended that it was entitled to do so because of the
Second
Respondent's conduct.
[14]
The First Respondent's submissions were aimed at illustrating that
the First Respondent view was that the Applicant's bid was
a bid
together with the Second Respondent. This submission is in conflict
with the Second Respondent's submission that it does
not support the
argument on the rectification. The documents before me are quite
clear and each party's role therein appears to
be similarly clear. It
would seem to be that the discourse between the parties arose because
of strife in the distribution of the
monies emanating from the First
Respondent and that the Second Respondent took it upon itself to
approach the First Respondent
to pay all monies payable under the SLA
to the Second Respondent. This in my view would be incorrect. The
mere fact that the Applicant
submitted a tender in its own name and
disclosed therein the joint venture with the Second Respondent (for
specific purpose) does
not detract from what the documents themselves
state. The Applicant has different rights and obligations in the SLA
and the JV
holds different rights and obligations for the Applicant
and the Second Respondent.
[15]
For the Second Respondent to have approached the First Respondent on
the basis that it did is, in my view, arrogating to itself
rights
which it does not have. The fact that the Applicant's papers include
reference to the Second Respondent is of no consequence.
The JV was
clearly limited to the administration portion of the tender. In my
view the First Respondent was incorrect to have adopted
the stance it
did and its purported cancellation was nothing short of ma/a
fide.
I do not further agree with the First
Respondent's contention that clause 10 is also not void for
vagueness. The relevant agreement
provides for the breach by either
party in addition to clause 10. The First Respondent relied on the
decision in CTP Ltd v Argus
Holdings Ltd
[1995] ZASCA 32
;
1995 (4) SA 774
(A) at 787 E
- G wherein Nienaber JA stated that:
"Three, a conclusion
of invalidity will only be reached as a last resort (cf Haviland
Estates (Pty) Ltd & Another v McMaster
1969 (2) SA 312
(A) at
337H; Lewis v Oneanate (Pty) Ltd
[1992] ZASCA 174
;
1992 (4) SA 811
(A) at 819 E - J);
[16]
On this basis the First Respondent suggested that I should overlook
certain words in clause 10 (in other words regard them
as
pro
non scripto)
in order to make sense thereof.
I do not agree with this approach. The First Respondent submitted
that it was placed in an invidious
position by the fact that it
appears that a dispute has now arisen between the Applicant and the
Second Respondent as to the exact
terms and/or existence of the joint
venture. This should not have been of any significance to the First
Respondent. It was, and
is bound to the SLA. In my view the First
Respondent was not entitled to hold back monies as it contended that
it was entitled
to do.
[17]
The Second Respondent submitted that it does not oppose the relief
sought against the First Respondent and only opposes the
relief
sought against it, namely the confirmation of the cancellation of the
JV. The Second Respondent submitted that before the
conduct of the
Second Respondent can be scrutinized and before it can be said to
have constituted a repudiation of the JV agreement,
one must consider
the submission that the JV is the party to the SLA and not the
Applicant alone. I find this difficult to comprehend
because if it is
as easy as contended the parties would not have contracted on the
basis that they did. This submission begs the
question why the
Applicant would have tendered for the contract alone with specific
rights and obligations and the JV would provide
specific services,
not necessarily included in the SLA. The Second Respondent submitted
that the court cannot decide the legal
question whether the Second
Respondent's conduct constitutes a repudiation of the JV before the
factual question has been decided
in the Applicant's favour. I do not
agree with this submission. The two agreements have two very
different aims in mind. The Second
Respondent can by no stretch of
the imagination contend that it would provide the services
contemplated by the SLA.
[18]
The Second Respondent submitted that the dispute about it being a
partner in the SLA cannot properly be decided on the affidavits

having regard to the existence of material factual disputes in that
regard. I do not agree. Despite contending that the joint venture
was
intended and understood by all three parties to be the service
provider in terms of the SLA the First Respondent did not support
the
First Respondent's application for rectification and argued instead
that the court cannot properly find that the conduct of
the Second
Respondent complained of by the Applicant, constituted a repudiation
of the JV, entitling the Applicant to cancel the
JV.
[19]
It would seem to be that the submissions of both Respondents are
aimed at creating a diversion intended to distract the court's

attention from the main issue at hand. The real issues are quite
simple. The Applicant referred me to the decision of Highveld
7
Properties v Bailes
1999 (4) SA 1307
(SCA) where in the court stated
the following on this point:
"the question to
be decided is whether this attitude adopted by the respondent
constituted a repudiation. The test to determine
whether conduct
amounts to a repudiation is whether fairly interpreted it exhibits a
deliberate and unequivocal intention no longer
to be bound
(see
0 K Bazaars (1929) Ltd v Grosvenor Buildings (Pty) Ltd
[1993] ZASCA 56
;
1993 (3) SA
471
(A) at 4801 - 481A).
[20]
In my view it is clear that the Second Respondent's conduct as
reflected in the various affidavits can hardly be said not to

constitute a repudiation of the JV. Consequently, in my view, the JV
was properly cancelled by the Applicant by the acceptance
the Second
Respondent's repudiation of the JV. In the premises I make the
following order:
[20.1] It is declared
that clause 10 of the Service Level Agreement between the Applicant
and the First Respondent dated 4 August
2014 is void for vagueness.
[20.2] It is declared
that the Service Level Agreement between the Applicant and the First
Respondent dated 4 August 2014 is of
full force and effect, and has
not in law been cancelled by the actions of the First Respondent.
[20.3] The First
Respondent is directed to comply with all its obligations in terms of
the Service Level Agreement concerned, in
particular by forthwith
making payment of the amount of R8 673 359.88 to the Applicant,
together with interest at a rate of 9%
per annum a tempore morae and
making payment of all amounts that will in future fall due in terms
of the said agreement to the
Applicant into the bank account
nominated for that purpose by the Applicant.
[20.4] The cancellation
of the Joint Venture Agreement between the Applicant and the Second
Respondent is hereby confirmed.
[20.5] The First and
Second Respondents are ordered to pay the costs of this application,
jointly and severally, the one paying,
the other to be absolved.
_______________________
G.
T. AVVAKOUMIDES
ACTING JUDGE OF THE HIGH
COURT
GAUTENG DIVISION,
PRETORIA
DATE: 9 NOVEMBER 2016
Representation
for Applicant:
Counsel:
S. G. Wagener
S. C.
Instructed
by:
Geyser Van Rooyen Attorneys
Representation
for First Respondent:
Counsel:
M. M. Rip SC
Instructed
by:
Moloto Attorneys
Representation
for Second Respondent:
Counsel:
N. G. D. Maritz
SC
Instructed
by:
Van Heerden and Krugel Attorneys

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