Shozhaloza Safaris and Air Charters CC v Dipka Farming (Pty) Ltd (1119/2008, 4513/2007) [2009] ZAFSHC 85 (17 September 2009)

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[2009] ZAFSHC 85
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Shozhaloza Safaris and Air Charters CC v Dipka Farming (Pty) Ltd (1119/2008, 4513/2007) [2009] ZAFSHC 85 (17 September 2009)

FREE STATE HIGH
COURT, BLOEMFONTEIN
REPUBLIC OF SOUTH
AFRICA
Case No.: 1119/2008
4513/2007
In the case between:
SHOZHALOZA SAFARIS
AND AIR
CHARTERS CC
Applicant
and
DIPKA FARMING (PTY)
LTD
Respondent
CORAM:
VAN DER MERWE, J
_____________________________________________________
JUDGMENT:
VAN DER MERWE, J
_____________________________________________________
HEARD ON:
2 SEPTEMBER 2009
_____________________________________________________
DELIVERED ON:
17 SEPTEMBER 2009
_____________________________________________________
[1] This application
concerns the interpretation of provisions of a contract of sale (“the
contract”) in terms of which the
purchase price is to be
determined.
[2] The aim of
interpretation of a contract is to ascertain the meaning of the words
used therein, in other words to ascertain the
intention of the
parties from the words used. To this end the words used must be
given their ordinary grammatical meanings within
the context in which
they were used. The context includes not only the wording of the
rest of the contract, but also the genesis,
nature and purpose of the
contract as well as the relationship between the various parties
concerned. See
WORMAN
v HUGHES AND OTHERS
1948 (3) SA 495
(AD) at 505;
SASSOON
CONFIRMING AND ACCEPTANCE CO (PTY) LTD v BARCLAYS NATIONAL BANK LTD
1974 (1) SA 641
(AD) at 646B – C;
LIST
v JUNGERS
1979 (3) SA 106
(AD) at 120B – F;
COOPERS
& LYBRAND AND OTHERS v BRYANT
[1995] ZASCA 64
;
1995 (3) SA 761
(AD) at 768A – T;
PANGBOURNE
PROPERTIES (LTD) v GILL AND RAMSDEN
1996 (1) SA 1182
(AD) at 1187B – C.
[3] During argument in
respect of the interpretation of the contract before me, reference
was made to evidence of the negotiations
between the parties leading
to the entering into the contract as well as subsequent conduct of
the parties showing the sense in
which they acted on the contract.
The papers also contain direct evidence by the parties of their
intentions. In the past evidence
of the first two types mentioned
above, were for purposes of interpretation of a contract classified
as “surrounding circumstances”
as opposed to “background
circumstances”, which would only be admissible in case of ambiguity
in the language of the contract.
In
KPMG
CHARTERED ACCOUNTANTS (SA) v SECUREFIN LIMITED AND ANOTHER
2009 (4) SA 399
(SCA) at 409 – 410 para [39], the Supreme Court of
Appeal per Harms DP jettisoned both the nebulous concepts of
background circumstances
and surrounding circumstances in the context
of interpretation of a document in favour of the context or factual
matrix thereof.
I do not think that evidence of the subsequent
conduct of parties to a contract can contextualise a contract. Such
evidence ought
therefore not to be admitted in order to interpret the
contract. I do think that evidence of the negotiations of the
parties could
in an appropriate case be admitted to contextualise a
contract and such evidence would in the light of the above be
admissible
without necessarily requiring an ambiguity in the language
as a prerequisite for the admission thereof. However, in the
KPMG
-case
the court reaffirmed that the integration rule remains part of our
law and that therefore 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. In the light hereof,
the
court stated that all evidence to establish the context or factual
matrix of the document must be used as conservatively as
possible.
In my judgment it follows that evidence of the negotiations between
parties to such written contract, should be resorted
to for purposes
of interpretation thereof rarely and in exceptional cases. It is
clear too, that direct evidence of the intentions
of the parties
remains inadmissible to interpret the document. See
COOPERS
& LYBRAND v BRYANT
-
supra
at 768D – E.
[4] This application was
referred for oral evidence by order of a Colleague dated 24 April
2008. When the matter came before me
counsel for the respondent
indicated that the respondent considered abandoning its reliance in
the papers on rectification of the
contract. I then raised the
question whether in the light of the above the evidence intended to
be led, would be admissible.
This led to formal abandonment by the
respondent of any reliance on rectification of the contract and a
request by agreement between
the parties that oral evidence be
dispensed with. To this request I acceded, in the light of the
above. See
WALLACH
v LEW GEFFEN ESTATES CC
[1993] ZASCA 39
;
1993 (3) SA 258
(AD) at 263.
[5]
Mr Charles Larsen and
Mr Jim McLain at the time together held 97% members interest in the
applicant. Both are citizens of the
United States of America. Mr L
J van Vuuren at the time held 3% members interests in the applicant
and at all times relevant hereto
acted as the South African manager
and representative of the applicant. The negotiations that led to
the contract commenced on
or about 1 April 2006 when Mr Van Vuuren
offered the property mentioned in the contract for sale for a total
purchase price of
R7,5 million. At the time no mention was made of
the rand/US dollar exchange rate, nor was there mention thereof in
the draft
contract drawn during or about July 2006 by an attorney
appointed by Mr Van Vuuren on behalf of the applicant. It is clear
however
that it was at all relevant times known to the respondent
that there is at least a possibility that the greater portion of the
purchase prise would find its way to the United States of America.
It is however undisputed that the respondent intended to utilise
the
farm properties in question for beef production for the South African
market and that therefore from the respondent’s perspective,
the
rand/dollar exchange rate played no role in its decision to enter
into the transaction. The negotiations between the parties
were then
delayed by the attempt by the respondent to obtain black economic
empowerment partners for purposes of the transaction.
[6] The contract itself
was negotiated at a meeting held on 4 August 2006 at Vrede. For
purposes of this meeting both Mr Larsen
and Mr McLain and their
spouses came from the US and were present. At the meeting mention
was made thereof that the rand had since
April 2006 deteriorated
against the dollar. Further negotiations took place as a result of
which agreement was reached on that
day. The contract was
subsequently drafted by an attorney instructed by Mr Van Vuuren on
behalf of the applicant and signed by
the parties thereto on 11
September 2006 Mr Van Vuuren signed the contract on behalf of the
applicant. The farm properties were
transferred in the name of the
respondent on 7 March 2007. On that day the rand/dollar exchange
rate was R7,266 to the dollar.
[7] The relevant
provision in the contract provides as follows:
“
1. PURCHASE PRICE:
THE purchase price is the amount of
R7,5 million
(SEVEN comma FIVE MILLION RANDS) AT PRICE OF R6,20 TO THE DOLLAR
The PURCHASE PRICE of the
FARMS
is the sum of
R5 380 000,00
(FIVE MILLION THREE HUNDRED AND EIGHTY THOUSAND RANDS)
The PURCHASE PRICE of the
GAME
is the sum of
R2 000 000,00
(TWO MILLION RANDS)
The PURCHASE PRICE of the
EQUIPMENT
is the sum of
R120 000,00
(ONE HUNDRED AND TWENTY THOUSAND RANDS)
And payable by the PURCHASER to the
SELLER as follows:
a FINAL PRICE adjustment will be made
in favour of the SELLER if the RAND-DOLLAR exchange rate exceeds that
of R6,51 to a dollar
– the PURCHASE PRICE to be paid into the
following account on date of registration:
ACCOUNT NAME SHOZHALOZA SAFARIS AND
AIR CHARTERS CC – STANDARD BANK, VREDE – ACCOUNT NUMBER 042323266
– ACB CODE 055043
A DEPOSIT of 5% (FIVE PERCENT) will be
paid on DATE OF SIGNATURE of this CONTRACT to PRETORIUS AND BOSMAN
TRUST, ABSA BANK, VREDE,
Acc no: 2260660161 – payable to the SELLER
on date of transfer.
The PURCHASER will provide guarantees
for the balance of the purchase price within six (6) months from date
of signature hereof.”
[8] It is common cause
that the respondent paid the amount of R7 875 000,00 in respect of
the purchase price in terms of the contract.
This amount consists of
the purchase price of R7,5 million adjusted with the amount of R375
000,00. Interest in the amount of
R10 119,85 was also paid. In the
notice of motion the applicant asks for an order declaring that the
purchase price in terms of
the contract on 7 March 2007 amounted to
R8 789 516,12 and for judgment against the respondent in favour of
the applicant in the
amount of R904 306,28 together with
mora
interest thereon calculated from 7 March 2007 to date of payment.
The relief claimed by the applicant is based thereon that in
terms of
the contract the purchase price is the dollar equivalent of R7,5
million at the exchange rate of R6,20 to the dollar,
adjusted to rand
at the rate of R7,266 to a dollar (R7,5 million ÷ 6,20 x
7,266). This according to the applicant amounts
to R8 789 516.12,
leaving a shortfall of R904 396,28 after taking into account the
aforesaid total payment of R7 885 119,85. The
stance of the
respondent is that in terms of the contract the adjustment of the
purchase price is limited to a rand/dollar exchange
rate of R6,51 to
a dollar and that that amounts to the amount paid in respect of the
purchase price, namely R7 875 000,00.
[9] The parties are
agreed, in my judgment correctly, that the provision in question
should be interpreted to read that a final
price adjustment will be
made in favour of the applicant if on the date of registration of the
fixed properties in the name of
the respondent the rand/dollar
exchange rate is in excess of R6,51 to a US dollar. As stated above,
it is common cause that on
date of registration the rand/dollar
exchange rate thus was in excess of R6,51 to the dollar. The real
question therefore is how
the price adjustment must be made. The
applicant contends that the contract provides that the price
adjustment must be made to
the actual rand/dollar exchange rate on
date of registration of the properties whereas the respondent
contends that it provides
that the price adjustment must be made to
R6,51 per dollar. It is clear that the ordinary grammatical meaning
of the words used
do not provide an answer to this question.
Therefore in my judgment this is particularly a case where the
“context is everything”.
[10] It was argued on
behalf of the applicant that it is not expressly stated in the
contract that the maximum purchase price would
be the dollar
equivalent of R7,5 million at the rate of R6,20 to the dollar,
adjusted to rand at the rate of R6,51 per dollar and
that it would
have been easy to say so in the contract. This is true, but it is
equally true that the contract does not expressly
provide that the
purchase price would be adjusted to the actual exchange rate at the
date of transfer of the fixed properties if
by then the exchange rate
was in excess of R6,51 to the dollar. It would also have been easy
to word such a provision, the contract
could for instance simply have
provided that in that case the purchase price would be the actual
rand equivalent of 1,2 million
US dollars, as is the applicant’s
case.
[11] It was further
argued that the adjustment provision in the contract must have been
calculated to protect the applicant against
a worsening rand/dollar
exchange rate as the purchase price or the greater portion thereof
would be transferred to the US. This
factor however is countered by
the improbability that the respondent would be bound to what would on
the applicant’s interpretation
be an open- ended and unpredictable
purchase price, based on a matter that was not connected to the
intrinsic value of the property
to the respondent at all.
[12] To me the decisive
factor is the following. It is common cause that at the beginning of
April 2006 the rand/dollar exchange
rate was in the region of R6,20
to the dollar and on 4 August 2006 it was R6,81 to the dollar and
that the parties were aware thereof
on 4 August 2006. The number of
R6,51 to the dollar is midway between R6,20 and R6,81 to a dollar.
The number of R6,51 to a dollar
therefore is clearly a very
significant matter. In my judgment the number R6,51 to a dollar
obviously signifies a compromise.
On the respondent’s construction
of the contract it is easy to find the compromise. The respondent
would not pay a purchase
price adjusted to more than half of the
difference between R6,81 to the dollar and R6,20 to the dollar. It
was therefore a case
of “split the difference”. On the other
hand, on the applicant’s construction, the number of R6,51 to a
dollar is essentially
meaningless and there is no actual compromise
included in the contract. On 4 August 2006 the rand/dollar exchange
rate was already
R6,81 to the dollar and the parties expected that
that rate might very well continue to rise in rand terms until
transfer of the
properties takes place which, it was realised, could
take some months, as it did. In effect therefore there would simply
be an
unlimited price adjustment in favour of the applicant. On this
basis, the applicant’s construction in my view gives no real effect

to the number R6,51 to a dollar and is wrong.
[13] It follows that the
applicant did not prove on a balance of probabilities that it is
entitled to the relief claimed.
[14] The application is
dismissed with costs.
________________________
C.H.G. VAN DER MERWE,
J
On behalf of applicant:
Adv. A. J. R. van Rhyn SC
Instructed by:
Rosendorff
Reitz Barry
BLOEMFONTEIN
On behalf of respondent:
Adv. R. G. Lagrange
Instructed by:
McIntyre &
Van der Post
BLOEMFONTEIN
/em