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1988
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[1988] ZASCA 153
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Diary Board v Annandale Diary Farms (Pty) Ltd. (153/88) [1988] ZASCA 153 (29 November 1988)
IN THE SUPREME COURT OF SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
THE DAIRY BOARD
Appellant
and
ANNANDALE DAIRY FARMS (PTY) LIMITED
Respondent
CORAM:
CORBETT, HOEXTER, BOTHA, GROSSKOPF et MILNE JJA
HEARD:
1
November 1988
DELIVERED:
29 November 1988
JUDGMENT GROSSKOPF, JA
This case concerns the powers of the appellant, the Dairy Board, which is a
control board established by a scheme for regulating the
marketing of dairy
products in terms of the Marketing Act, no. 59 of 1968. In the Cape of Good Hope
Provincial Division the respondent,a
milk producer, applied for an order
declaring that the appellant had acted unlawfully and
2
ultra vires
in withholding from the respondent the repayment of
certain premiums, and ordering the appellant to pay the amounts thereof to the
respondent. The court (TEBBUTT J) granted this order, and gave leave to appeal
to this Court - hence the present appeal. The judgment
of the Court
a quo
has been reported as
Annandale Dairy Farms (Pty) Ltd v. Dairy Board
1987
(2) SA 727
(C). Before passing to the merits of the appeal I should record that,
at the outset of the argument on appeal, condonation was granted
for the late
filing of the appellant's notice of appeal.
It is convenient to commence wíth the legislative background to the
present dispute. Since 1962 there have been several schemes
for the marketing of
milk and other dairy products pursuant to successive Marketing Acts. For present
purposes we are concerned mainly
with the current scheme and the current Act,
although I shall later have to make brief reference to the earlier ones.
The Marketing Act no. 59 of 1968 (hereafter called simply "the Act") defines
a scheme as
3
"a set of rules complying with the requirements of this Act in relation to any
one or more of the following, namely -
(a) the regulation of the marketlng of any product in the Republic;
(c) the promotion of the demand for any product whether within or outside the
Republic;
and matters incidental thereto ..." (sec. 1)
The
manner in which schemes are to be established is laid down
in Part 2 of the
Act. Acting pursuant to these provisions
(before thelr amendment by Act 66 of 1984) the State President
by
proclamation R 290 of 1978 published a "Scheme for Regulating
the Marketing of Dairy Products in terms of the Marketing Act,
1968, and Matters Incidental Thereto" (hereinafter referred to
as "the Scheme") to take effect on 1 March 1979. Prom this date
the Scheme was, pursuant to section 14(2) of the Act, "binding
on the persons to whom and in the area in which those provisions
apply." It was common cause that the Scheme was binding on the
respondent as a registered producer of milk in the Cape Peninsula
area. For convenience I shall henceforth refer to the
4
respondent as the Producer. The appellant was established by section 6 of the
Scheme as a control board to administer the Scheme.
For convenlence I shall
refer to it as the Board. In terms of section 6(2) of the Scheme and sec 25(2)
of the Act the Board is a
body corporate capable of suing and being sued in its
own name, and of performing all such acts as are necessary for or incidental
to
the carrying out of its objects and powers under the Scheme .
The Board derives its income solely from levies on dairy products. Provisions
are contained in the Scheme and the Act authorising
the Board to impose, with
the consent of the Minister of Agriculture,general levies (section 21 of the
Scheme and sectlon 41 of the
Act) and special levies (section 22 of the Scheme
and section 44 of the Act). In fact the Board imposed both a general levy and a
special levy. The general levy is used to finance the Board's administrative
expenses and may be devoted to other authorized purposes.
It is not in issue in
this appeal. We are concerned only with the special levy, and
5
the use to which it has been put.
The levies are collected from the
purchase price of milk in the following manner. In terms of the Scheme
registered producers of fresh
milk sell and deliver their milk to distributors
at controlled prices. The distributors in turn sell it to the public. The
distributors
do not pay the producers direct, but pay the purchase price over to
the Board for the credit of a Milk Purchases Fund. If more milk
is produced than
is required for immediate public consumption the surplus is delivered to the
Board, which sells it to persons such
as producers of cheese or milk powder. The
proceeds of such sales are also paid into the Milk Purchases Fund. Every month
the Board
deducts the general and special levies from this fund and distributes
the balance among producers
pro rata
to the volume of mllk with a defined
butterfat and protein content supplied by each producer. A part of the special
levy is transferred
to a Quality Purchases Pund which is used to pay quality
premiums to producers whose milk complies with certain
6
quality standards laid down by the Board. Since these quality premiums form
the nub of the present case it is worthwhile considering
their origin in some
detail.
In 1964 the Board's predecessor under an earlier scheme sent a study
group overseas to investigate,
inter alia
, methods employed in the
purchase of milk on the basis of guality and its cooling in bulk. In its report
the study group emphasized
that milk could not be effectively marketed unless it
was of high quality and was kept fresh by proper refrigeration. Up to that
time
milk had been conveyed from the producer in metal cans. In 1965 the Board's
predecessor decided to establish two experimental
routes on which bulk cooling
tanks would be installed on farms. Immediately after milking the milk would be
pumped into these tanks
and refrigerated. The refrigerated milk would then be
conveyed in insulated carriers to the distributors. In order to encourage
producers
to participate in the experiment, the Board's predecessor paid, with
the consent of the Minister, a premium of half a cent per gallon
from its
7
special levy fund to producers to asslst them in acquiring bulk
tanks. The
experiment was a great success. On 4 October 1965
the Board's predecessor
wrote to the Minister asking his approval
for the payment of a premium of
half a cent per gallon on all
milk refrigerated and transported in bulk in
the Cape Peninsula.
On 23 November 1965 the following reply was sent on
behalf of the
Minister:
"Die Minister het ... goedgekeur dat vanaf 1 Oktober 1965 'n premie van 0.5c per
gelling op melk in massa verkoel en vervoer in die
Kaapse Skiereilandgebied
betaal word, op die uitdruklike voorwaarde dat u Raad binne afsienbare tyd - in
samewerking met die Departement
van Landbou-tegniese Dienste, kwaliteits-en
higiëniese standaarde ten opsigte van massamelk opstel en dat die premie
slegs betaal
word op massamelk wat aan dié standaarde
voldoen."
On 2 July 1970 (the reason for the delay
is not apparent) the Board's predecessor again wrote, attaching the proposed
requirements
for the payment of the quality premiums, and reguesting the
Minister's approval thereof. The proposed requirements were numbered
(i) to
(vii) and related to matters
8
such as the temperature at which milk was to be stored, its
chemical,
physical and hygienic qualities, the frequency with
which it was to be
conveyed from the producer's tanks, the
specifications of the bulk tanks,
eguipment and road carriers,
etc.
Under the heading "Chemiese, Fisiese en Higiëniese
Kwaliteit" there appeared
inter alia
the following:
"dit (i.e., the milk) mag nie afkomstig wees van koeie wat aan mastitis ly
nie."
Mastitis is an inflammation of
the udder of a cow,
usually caused by bacteria which infect the udder. When the
udder is infected, the number of somatic cells (being mainly the
white blood cells fighting the infection) increases. This may
also result from other diseases, and a high count of somatic
cells in the milk is a reliable indication of udder disease in
the cow. Mastitis affects not only the quantity of milk
produced but also the quality. Thus the nutritional value of
affected milk is reduced. Moreover, such milk alwaya contains
9
a certain amount of pus, which is repugnant to the consumer.
And, finally, if raw milk is seriously contaminated by mastitis,
the
normal process of pasteurization may become deficient in that
some of the bacteria in the milk may not be destroyed thereby,
with the
result that they may be transferred to the consumer.
The request for Ministerial approval of the
proposed
quality standards received the following
response, dated 31
August 1970:
"Met verwysing na u brief ... van 2 Julie 1970 ... wens ek u mee te deel dat die
Minister slegs kennis geneem het van die voorwaardes
(i) tot (vii) ... wat by u
brief onder verwysing aangeheg is, aangesien die voorwaardes geen
beginselvoorstelle bevat wat die Minister
se goedkeuring verg nie, maar slegs
huishoudelike reëlings is waaraan produsente moet voldoen om te kwalifiseer
vir betaling
van die kwaliteitspremie."
After
receipt of this letter, the proposed system of
paying quality premiums from the proceeds of a special levy was
introduced and it continued in operation after the inception of
the present Scheme in 1979. In 1978 the quality premium had
been fixed at 1,25 cent per litre. The Board considered this
10
too low, and resolved as follows in May 1982:
"that the quality premium on fresh milk be increased to 10% of the gazetted
purchase price of fresh milk, with the necessary adjustment
in the special levy
for this purpose, and that such premium/levy then be adjusted accordingly with
every future price adjustment".
This resolution was approved by the Minister in
August
1982 as follows:
"U Raad se besluit met betrekking tot die aanpassing van die premie op
grootmaatmelk, met
elk
e verhoging in die prys van varsmelk, sodat dit 10%
van die vasgestelde volprys van varsmelk met h minimum bottervetinhoud van 3,3%
verteenwoordig, is ... deur die Minister goedgekeur as deel van die
prysreëlings vir 1982/83 wat op 1 Julie 1982 in werking
getree
het".
Although this approval was initially only in
respect of the price arrangements for 1982/83, the premium has been maintained
at that
level at all times relevant to the present appeal. There is no
suggestion on the papers that this does not carry the Minister's approval.
In 1983 the Board amended the requirements for the payment of a quality
premium, and informed all producers
11
accordingly by way of a circular dated 27 April 1983. The broad
pattern
remained the same, but the Board now defined with greater
precision what the
consequences would be if a producer, while
complying generally with the
Board's requirements, nevertheless
was in breach of one or more of them. This
was done negatively:
such a producer was said to be subject to "penalisation"
by way
of a "forfeiture" of the premium for a specified period. Thus,
for instance, if the milk was not stored at the right
temperature, the producer would "forfeit" the premium on the
specific day's milk deliveries from the tank concerned. If the
milk contained added water, the premium would be forfeited on a
full month's deliveries if added water was found to be present
in any day's deliveries during the course of the month, and so
on. In respect of mastitis the circular provided:
"The milk may not have been derived from cows infected with mastitis;
Penalisation:
Premium for particular day's deliveries is
forfeited."
On 26 March 1984 the Board sent a further circular to
12
all fresh milk producers in the Cape Peninsula area informing them of a Board
resolution to the effect that milk containing more than
750 000 somatic cells
per ml would be regarded as coming from cows infected with mastitis. Such milk
would accordingly not qualify
for the payment of a quality premium. The Board
also indicated how and by whom the milk would be tested.
The Producer at first regularly received its quality premiums. However, on 2
November 1984 the Board wrote to the Producer informing
it that a somatic cell
count in excess of 750 000 per ml had been found in deliveries by the Producer
during September and October,
and that, should the prescribed standard not be
attained during November 1984, the premium payment on the total volume of milk
delivered
during that month would be withheld. During November 1984 the Board in
fact withheld the November premium, which amounted to R12
535-00, but after
representations by the Producer, reconsidered its decision and paid the premium.
In the course of the exchanges
between the
13
parties it appeared that there was a dispute between them in regard to the
procedures used in testing the milk. Analyses obtained
by the Producer,
differing from those obtained by the Board, indicated that the somatic cell
count was within. permissible limits.
The Producer has, however, expressly
indicated that it does not wish the court to decide this dispute, which is in
any event incapable
of resolution on the papers. We must therefore assume that
the Board is correct in stating that the Producer's milk did not satisfy
the
Board's requirements.
The premiums for December 1984 and January 1985 (amounting respectively to
R10 967-76 and R11 143-96) were later also withheld by
reason of an excessive
somatic cell count. Although representations were again made, the Board remained
unconvinced and refused to
pay the premiums to the Producer. On 21 October 1985
the Producer issued the Notice of Motion in the present case. In it the Producer
asks for orders:
a) declaring that the Board acted unlawfully and
ultra
14
vires
"in withholding from the (Producer) the repayment
of premiums" for December 1984 and January 1985;
b) declaring that the Board "has no right or power to penalize" the Producer by
"withholding, declaring forfeit or confiscating any
such premium on the ground
that the fresh milk delivered by the (Producer) ... does not comply with the
(Board's) requirements as
to quality of the said milk, or on any other
ground";
c) ordering the Board to pay the said sums of R10 967-76 and R11 143-96 with
interest;
d) ordering the Board to pay the costs of suit. These prayers, it will have been
noted, proceed on the
basis that the Board has been
"withholding", "declaring forfeit" or "confiscating" the premiums, and the
application questions the
legality of such conduct on the part of the Board.
This approach was adopted also by the court
a quo
. At the very outset of
its judgment (
supra
, at p. 728 F-G) it defined the issues for decision in
the case as whether the withholding of the
15
premiums constituted a penalty, and whether, if it did, it was
ultra
vires
the Board. These questions were then answered in the affirmative.
However, the use of the word "withhold" in this context tends to
be misleading.
It suggests that the Producer's right to the premiums was not in issue, and
focuses attention on the Board's denial
of the right which is thus assumed to
exist. So understood the word "withhold" begs the question. The true question in
this appeal
is not whether the Board may "withhold" the premiums but whether the
Producer has any right to claim the premiums, and to this question
I now
turn.
The rights of the Producer as against the Board in the present matter depend
on the legality and effect of the special levy and the
system of guality
premiums introduced by the Board. In this regard it was not contended that the
Board, in introducing this system,
acted otherwise than in good faith and for
the attainment of authorized purposes. Indeed, the essence of a scheme in terms
of the
Act, as appears from the definition
16
quoted above, is that it serves
inter alia
to regulate the marketing
of products and the promotion of the demand for them. And section 19 of the
Scheme specifically authorizes
the Board to take such steps as may be approved
by the Minister for fostering or stimulating the demand for dairy products. In
the
present case the Board admittedly intended in good faith to promote the
objects for which it was established. In particular its purpose
was to foster or
stimulate the demand for milk by trying to ensure that milk of a high quality
was produced. The Producer's only
argument was that, although the Board's
purpose may have been commendable, the means which it employed were not
authorized by the
Scheme and the Act. This argument requires a closer analysis
of the provisions relating to the imposition of special levies and the
manner in
which the money raised thereby is to be used.
As adumbrated earlier in this judgment, section 22 of the Scheme (following
section 44 of the Act) empowers the Board, with the approval
of the Minister and
on such basis as the Board
17
may determine, to impose a special levy on dairy products, including milk. I
have set out the facts pertaining to the special levy
in the present case. The
imposition of the special levy clearly complies with the provisions of the
Scheme, and the Producer has
not contended to the contrary.
In terms of section 26(1) of the Scheme and section 46(3) of the Act money
derived from a special levy is to be paid into one or more
special funds. In the
present case this has been done. In particular, some of the money was paid into
the Quality Purchases Fund.
The money thus raised by special levies and paid
into special funds became, in my view, the property of the Board to be
administered
according to law. This proposition was not disputed by the
Producer's counsel. The view expressed in the judgment of the court
a guo
(
supra
at p. 734 B and p. 737 G) that the money collected by the special
levy belongs, not to the Board, but to the producers, is conseguently
incorrect.
Nor do I agree with the learned Judge
a guo
(
loc. cit
) that the
Board itself saw matters in that light. The attitude of the Board,
18
as I understand the passage quoted in the judgment
a quo
at p.
734
A-B, was that all the money raised by the special levy was
to be paid to
producers of milk who qualified to receive the
quality premiums. No doubt
this recognizes the moral right of
the body of producers to receive the proceeds of the special
levy. It does
not, however, imply that the money "belongs" to
such body, nor,
a fortiori
, that any part of it "belongs" to any
individual producer. However, be that as it may, the víews of
the Board are of little importance. What matters are the
objective facts and their legal consequences. As I have stated
the true position in my view is that the money became the
property of the Board to be dealt with as prescribed by law.
And in this regard section 26(2) of the Scheme provides:
"The Board may deal with money in any such special fund in such manner as may
be approved by the Minister."
The effect of this sub-section is that the Board may
pay the money to the Producer if, and only if, such payment
accords with the manner of dealing with the fund which has been
19
approved by the Minister. On the papers it was common cause that the Minister
had approved the manner in which quality premiums were
to be paid. However,
during argument there was some suggestion on behalf of the Producer - I deal
with it in greater detail later
- that the Minister did not in fact give such
approval. If this suggestion were correct the result would not be that the Board
was
obliged or even entitled to pay the premiums to the Producer. The very
converse would be the case.
It is clear that the Minister has not approved any manner of dealing with the
money other than by the payment of quality premiums.
Consequently, if it were to
be correct that the payment of quality premiums also did not receive his
approval, the result would be
that the Minister has not approved any manner
whatever of dealing with the money in the special fund. The Board would then be
compelled
to leave the money in the fund until the Minister has given approval
for it to be dealt with in some manner.
Realizing what the effect would be if the Minister had
20
given no approval whatsoever, Mr. Dison, who appeared for the
Producer,
argued that the Minister had given only a partial
approval. The Minister
had, he contended, approved the payment of quality premiums in principle, but
had not approved the specific
requirements laid down by the Board. Therefore, he
contended, the premium should be paid to producers whether or not they complied
with the detailed quality standards.
In view of the Minister's attitude as expressed in the above-quoted passage
from the letter dated 31 August 1970, viz., that the specific
requirements were
domestic arrangements which did not need his approval, there is something to be
said for the factual basis upon
which this argument rests, and I return to it
later. However, if it were to be correct that the specific requirements were
invalid
because they lacked the Minister's approval, the result would not be
that contended for by Mr. Dison. What is clear beyond doubt
is that the Minister
has not approved the payment of premiums for milk which falls short of the
prescribed quality standards. As
early as 25 November 1965
21
the Minister insisted (in the passage quoted above) that payment of quality
premiums should be made only in respect of bulk milk complying
with standards of
quality and hygiene approved by the Board in co-operation with the Department of
Agricultural Technical Services.
There is no suggestion on the papers that the
Minister's attitude in this respect has ever changed. Counsel's submission that
the
Minister must be taken to have approved the payment of a quality premium in
a case like the present where the producer has, on the
facts assumed for the
purposes of this judgment, supplied milk which did not comply with the
prescribed standards,cannot be sustained.
It follows from what I have said that it does not really matter for present
purposes whether the Minister has sufficiently and effectively
approved the
requirements for the payment of quality premiums. If he has given an effective
approval the Producer cannot claim the
premiums because its milk did not comply
with the Board's requirements. If no effective approval has been given, the
Producer still
cannot claim the
22
premiums because payment to it would not be in accordance with any approval
given by the Minister. I would nevertheless like to add,
even if it is
obiter
, that, in my view, the Minister has effectively approved the
payment of quality premiums. In terms of section 26(2) of the Scheme
he must
approve the "manner" in which the Board is to deal with money in the special
fund. In the present case he approved, on 4
October 1965, the payment of a
premium in a specifled amount (which was later, with his approval, increased) in
respect of milk refrigerated
and conveyed in bulk, provided that such premium
was to be paid only for milk which complied with standards to be laid down in
co-operation
between the Board and the Department, as set out above. In my view
this constituted a sufficient description of the "manner" in which
the Board was
to deal with the money for the purposes of section 26(2) of the Scheme, and the
Minister was entitled to adopt the
attitude reflected in the above-quoted letter
of 31 August 1970 that the detailed standards laid down by the Board were a
domestic
matter which did not require his specific
23
approval. I assume, of course, that the standards were in fact laid down in
co-operation between the two bodies as required by the
Minister - a matter that
was not canvassed on the papers, since the Producer did not then dispute that
the Minister's approval had
been given.
No point was made in argument - and, in my view, rightly so - of the fact
that the Minister's approval of the payment of quality premiums
was given in
1964, before the commencement of the Scheme. There are various bases upon which
it may be held that such approval is
still in force, but the simpiest derives
from the succession of control boards established by schemes for the marketing
of milk and
cream. The first such scheme was promulgated under proclamation R 8
of 1962 issued pursuant to the Marketlng Act, no. 26 of 1937.
Sections 19 and
20(2) of the 1962 scheme dealt with the imposition of special levies, their
payment into speciai funds, and the manner
of dealing with the money in special
funds. These provisions do not differ in any material respect from the
corresponding
24
provisions of the present Scheme.
The 1962 scheme was repealed and
replaced by a new scheme promulgated under proclamation R 225 of 1966. Despite
the repeal and the
replacement, sections 19 and 22(2) of the scheme remained
substantially unaltered. Section 31 of the 1966 scheme further provided,
inter alia
, that any authorization given under the 1962 scheme would be
deemed to have been given under a corresponding provision of the 1966
scheme.
The 1966 scheme was in turn repealed and replaced by the present scheme,
which contains a similar saving provision in section 50.
And section 100(2) of
the Act contains a saving provision for steps taken or things done under its
predecessor, the 1937 Marketing
Act. Pursuant to these various saving provisions
approval given by the Minister of the manner in which the control board of an
earlier
scheme could deal with money in a special fund would have been carried
forward to the present Scheme.
To sum up: my view is that the Producer has not shown
25
that it was entitled to payment of the disputed amounts from the
Quality Purchases Fund, whether by way of quality premiums or otherwise.
There
can accordingly be no question of the Board having been guilty of "unlawfully
... withholding the repayment of premiums" as
contemplated by prayer a) of the
notice of motion, nor of the Board having claimed a right to "penalize" the
Producer by "withholding,
declaring forfeit or confiscating any such premium" as
contemplated by prayer b).
In the court
a quo
the non-payment of the premium was regarded as a
penalty, and, as stated above, the question was discussed whether the Board was
entitled to impose such a penalty. Now, of course, a producer who does not
obtain a quality premium is worse off than one who does
and to that extent he
suffers a disadvantage. However, the Board's actions which gave rise to this
disadvantage were in my view,
for the reasons which I have stated, authorized by
the Scheme and the Act, and it therefore, with respect, servês little
purpose
to consider whether or not this disadvantage can be considered a penalty
in
26
any sense of the word.
It follows from the aforegoing that in my view the
application should not have been granted and that the appeal must
succeed.
Finally I turn to the matter of costs. At the hearing before the
court
a quo
the Producer applied for the striking-out of large parts of
the Board's opposing affidavits and annexures thereto on the grounds
that they
were irrelevant or contained hearsay matter. In the result the trial court did
not make any order on the application to
strike out since it granted an order of
costs in favour of the Producer (cf. the judgment (
supra
) at p. 738 C).
For the purposes of the preparation of the appeal record the Producer agreed
that the matter to which it had objected
in its notice to strike out could be
deleted from the record. The Board made substantial use of this consent, but
still decided to
include some passages to which objection had been taken. The
Producer contended that the Board should be deprived of the costs of
that part
of the record. This
27
contention was made in general terms, and no attempt was made by the
Producer's counsel to substantiate it with reference to specific
passages. It
will suffice therefore if I also deal with this matter in general terms and
state that the record as presented to this
court does not seem to me to contain
sufficient objectionable matter to warrant a special order as to costs. As far
as the papers
in the court
a guo
are concerned, the fact that certain
parts of the record could, without harm to the Board's case, be deleted on
appeal does suggest
that such parts should probably not have appeared in the
record at all. However, as emphasized on behalf of the Board, we do not
have the
full record before us as it was presented to the court
a quo
. It is
therefore impossible to come to a firm conclusion that the matter now deleted
was irrelevant to the issues as they would have
appeared to the Board when
drafting its opposing affidavits, or was in other ways objectionable. I also did
not understand Mr. Dison
to contend that we can or should now determine whether
the motion to strike out should have succeeded in whole or part.
28
I accordingly do not think we would be justified in making a special order
for costs either in this court or the court
a guo
.
In the result the
appeal is upheld with costs, including the costs of two counsel. The order of
the Cape of Good Hope Provincial Division
is set aside and replaced by the
following:
"The application is refused with costs, including the costs of two
counsel".
E M GROSSKOPF, JA CORBETT, JA
MILNE, JA