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[2020] ZASCA 129
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Transnet National Ports Authority v Reit Investments (Pty) Limited and Another (1159/2019) [2020] ZASCA 129 (13 October 2020)
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 1159/2019
In
the matter between:
TRANSNET
NATIONAL PORTS AUTHORITY APPELLANT
and
REIT
INVESTMENTS (PTY) LIMITED FIRST
RESPONDENT
M
C SEOTA
NO SECOND
RESPONDENT
Neutral
citation:
Transnet
National Ports Authority v Reit Investments (Pty) Limited and Another
(Case no 1159/2019)
[2020] ZASCA 129
(13 October 2020)
Coram:
PETSE DP, SALDULKER, PLASKET and
DLODLO JJA and MATOJANE AJA
Heard
:
3 September 2020
Delivered
:
This judgment was handed down electronically by circulation to the
parties’ legal representatives by e-mail, publication
on the
Supreme Court of Appeal website and release to SAFLII. The date and
time for hand-down is deemed to be 09H45 on 13 October
2020
Summary:
Notarial deeds of
lease – determination of rental payable by umpire appointed
jointly by lessor and lessee – umpire
executing mandate in
accordance with its terms – no legal basis established for
reviewing and setting aside determination.
Contract – interpretation of – s 67 of
National Ports Act 12 of 2005
– applicability of.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Johannesburg (Moshidi J sitting as court
of first instance):
1 The appeal is upheld with costs, including the costs
of two counsel.
2 The order of the court below is set aside and in its
place is substituted the following:
‘
The
application for review is dismissed with costs, including the costs
occasioned by the employment of two counsel.’
JUDGMENT
Petse DP (Saldulker, Plasket and Dlodlo JJA and
Matojane AJA concurring)
[1] This appeal raises two interrelated issues. The
first issue concerns the circumstances in which the determination
made by an
expert valuer or umpire jointly appointed by two parties
to a contract is susceptible to being reviewed and set aside by a
court.
In a broader context, the subject of the appeal is the correct
basis upon which valuations of immovable property, situated in Maydon
Wharf in the port of Durban, should be made for purposes of
determining rentals payable in respect of those properties. The
second
issue raises the question whether the agreements concluded
between the parties in 2009 and described as ‘Declaration of
Rental’
had the effect of varying the basis upon which rental
would be determined for the remaining period of the long-term leases
terminating
by effluxion of time on 30 September 2029.
[2] The appellant, Transnet National Ports Authority
(Transnet), is one of the trading entities under the auspices of
Transnet Limited,
which is a public company incorporated in terms of
the Legal Succession to the South African Transport Services Act 9 of
1989 as
read with the
Companies Act 71 of 2008
. Transnet operates,
amongst other things, the port of Durban. The first respondent is
Reit Investments (Pty) Ltd (Reit) which is
a private company
incorporated in South Africa. Its principal place of business is in
Johannesburg. The second respondent is Mr
Matsobane Charles Seota,
(Mr Seota), who was cited in his official capacity as the
registrar of the South African Council
for the Property Valuers
Profession (SACPVP). Although Mr Seota’s valuation took the
centre stage in the review proceedings
in the High Court, no
substantive relief was sought against him personally. Not
surprisingly therefore, he took no part in the
proceedings in the
court below and has not participated in this appeal.
[3] Mr Seota’s valuation was impugned on the
narrow basis that he ‘did not determine the market value of the
land when
attempting to resolve the deadlock between the appraisers
appointed’ by Transnet and Reit. It was asserted by Reit that
‘instead
of determining the market value of the land, to which
had to be applied the contractually stipulated fixed percentage to
establish
the annual rental’, Mr Seota ‘determined
(contrary to the terms of the contract) the market-related rental in
respect
of the properties’. The reference to ‘the
contract’ is patently a reference to the long-term notarial
leases.
[4] The dispute between the parties had its genesis in
five long-term notarial agreements of lease concluded between
Transnet’s
predecessor in title called the South
African Railways & Harbours, as lessor, and Reit’s
predecessor-in-title,
named B & C Properties South Africa (Pty)
Ltd, as lessee during June, August and September 1960. Save for minor
differences
relating to the percentages that were to be used in
determining the rental payable in respect of each agreement of lease,
the five
notarial leases were otherwise in identical terms.
[5] Reit had initially sought an order reviewing and
setting aside Mr Seota’s determination coupled with an
order directing
Transnet to procure, within the period determined by
the court, a fresh valuation of the land in accordance with the
principles
identified in the judgment of the court below. However, it
so happened that long after Transnet had delivered its answering
affidavit,
Reit changed tack some few months before the hearing. It
then sought declaratory orders to the effect that Mr Seota was
appointed
to value the land (excluding improvements thereon) in terms
of the agreements of lease but failed to do so. I shall revert to
this
later.
[6] Despite opposition by Transnet, the High Court
(Moshidi J) held that Reit had made out a case for the relief sought.
Accordingly,
it granted relief substantially in the terms sought by
Reit in its amended notice of motion. Although more will be said
about the
conclusions of the High Court later, it suffices, for now,
to briefly set out its principal conclusions. It said (paras 14 and
15):
‘
At
the commencement of argument, it was common cause that the second
respondent, when making the rental determination, as he did,
was not
acting as an arbitrator, but in fact, as an expert valuer. After all
is said and done, the historical exposition described
above, the
crisp issue for determination is therefore the question: whether
Mr M C Seota NO (“the second respondent”),
in
making the rental determination, failed to discharge his mandate in
terms of the notarial deeds of leases, to determine the
value of the
land, excluding the improvements constructed thereon, and by
determining a market- related rental for the premises
contrary
to the express terms of the notarial leases and if the second
respondent was incorrect, as contended by the applicant,
whether his
determination is susceptible to review and setting aside by the
Court.
The
first respondent, in also relying on the provisions of section 67 of
the National Ports Act 12 of 2005 (“the Ports Act”),
advanced the submission in its heads of argument, that the parties
amended the notarial leases pursuant to the conclusion of the
2009
Declarations to provide that the valuer would determine a
market-related rental for the leased premises, instead of determining
the market value of the land, excluding improvements. In the process,
the first respondent also invoked the principle of
res
judicata
in support of its argument
that the applicant is not entitled to challenge the second
respondent’s valuation. It is to these
competing submissions,
and related ones, I must now turn, having in mind some legal
principles, applicable.’
[7] The Court then continued (paras 33 and 34):
‘
On
the other hand, and on this aspect, the applicant, as observed above,
presented entirely different arguments. I have already
discredited
the second respondent’s rental determination.
. . .
It is so, in my view, and as argued by the applicant that, the
parties never amended the notarial leases pursuant to the conclusion
of the 2009 Declarations to provide that the valuer (the second
respondent) would determine a market-related rental for the leased
premises instead of determining the market value of the premises,
excluding improvements. Neither was there any evidence, in whatever
form, to suggest so. I must therefore find that Transnet’s
assertion that the notarial deeds of leases were amended in the
manner suggested, as entirely unsustainable in the circumstances of
this case. On a proper construction, the terms of the 2009
Declarations concluded on 17 August 2009, do not show that an
amendment to the notarial leases in the terms as alleged by the first
respondent. If this was so then the parties would have been obliged
to follow the procedure as set out in the Deeds of Leases.
For
starters, the Declarations signed by the applicant in 2009, were
conditional. . . .’
[8] As already indicated, the High Court proceeded to
grant relief to Reit substantially in terms of its amended notice of
motion.
This appeal is against that order and comes before us with
the leave of this Court after the High Court had refused leave.
In order to promote a better understanding of the nature and ambit of
the issues in this appeal, the facts giving rise thereto,
which are
largely common cause, require to be canvassed in some detail.
[9]
As previously mentioned, the parties concluded five long-term
notarial leases in respect of properties located in the Durban
Port
precinct at what by all accounts were nominal rentals based on an
agreed percentage of the market value of the land excluding
improvements thereon.
[1]
As the various leases were to endure
for periods in excess of 60 years, the rental payable was to be fixed
for five-year periods
only at any given time. It bears mentioning
that although the five long-term leases were to terminate by
effluxion of time at different
times, (some in 2025 and others in
2029) Transnet and Reit agreed, four years after signing the 2009
declarations of rental, to
vary the termination dates of the leases
so that they would all terminate on 30 September 2029.
[10] Clause 5 of the various agreements, which is
central to the dispute between the parties, bears special mention. It
provides,
to the extent relevant for present purposes, that:
‘
(a)
The Administration may, and if called upon by the Lessee shall, at
any time within three (3) months prior to the commencement
of any
period of five (5) years contemplated in clause 3 hereof, but
excluding the initial period referred to in paragraph (a)
of that
clause, determine the market value of the land and notify the Lessee
of the value so determined and of the rent which will
consequently be
payable in respect of the full period of five (5) years with
reference to which such determination was made.
(b) If the Lessee is not prepared to accept the Administration’s
determination of the market value, it shall forthwith notify
the
Administration accordingly, whereupon the value shall be determined
by sworn appraisement as hereinafter provided.
(c) Such appraisement shall be undertaken by a sworn appraiser to be
selected by the parties jointly. If the parties cannot agree
on one
sworn appraiser, each party shall appoint one sworn appraiser to
undertake the valuation jointly with the one appointed
by the other
party, and if these two appraisers cannot agree on their valuation,
they shall jointly select a third as umpire, whose
valuation shall be
final and binding on the parties. The cost of all appraisements shall
be borne by the parties in equal shares.
(d) If the Administration does not notify the Lessee of any change in
its determination of the market value and the Lessee does
not request
such determination both within the three (3) months aforesaid, it
shall be deemed that there has been no change in
land values to
justify a revision of the rental and in that case the rental for the
then current period of five (5) years shall,
except where a higher
percentage rate on market value becomes applicable in terms of clause
(3), be the same as that which was
applicable during the immediately
preceding period.’
[11] It is also necessary to make reference to clause 18
that provides:
‘
It
is specifically understood that no amendment or variation of the
terms and conditions of this lease in any form or manner whatsoever
will be recognised by or be binding upon the Administration, unless
and until such amendment or variation has been embodied in
a formal
written agreement duly executed by the Administration and by the
Lessee.’
[12] It is apposite at this juncture to make reference
to the National Ports Act, 12 of 2005 (the NPA) which came into
operation
on 26 November 2006. The objects of the NPA are set out in
s 2 which reads:
‘
The
objects of this Act are to–
(a)
promote the
development of an effective and productive South African ports
industry that is capable of contributing to the economic
growth and
development of our country;
(b)
establish
appropriate institutional arrangements to support the governance of
45
ports;
(c)
promote and
improve efficiency and performance in the management and
operation of ports;
(d)
enhance
transparency in the management of ports;
(e)
strengthen
the State’s capacity to–
(i) separate operations from the landlord function within ports;
(ii) encourage employee participation, in order to motivate
management and workers;
(iii) facilitate the development of technology, information systems
and managerial expertise through private sector involvement
and
participation; and
(f) promote the development of an integrated regional production and
distribution system in support of government’s policies.’
[13] Section 67, which is headed ‘Restructuring
and reform of ports’, provides in subsec (1)
(b)
thereof
that:
‘
If,
in any area within a port–
(b) the terms of a long-term lease which existed immediately before
this section took effect are substantially prejudicial to the
operation of a port, including terms providing for unreasonable low
rentals or containing no restrictions on sub-letting or no
provision
confining the use of the property to a use relating to the relevant
port, the Authority may in writing addressed to the
lessee direct
that the applicable terms be renegotiated in order to remove the
prejudice.’
[14]
It is manifest even on a cursory reading of s 67(1)
(b)
that Transnet is empowered, in
circumstances where the terms of a long-term lease concluded before
this section took effect are
thought to be substantially prejudicial
to the operation of a port, because they, amongst other things,
provide for unreasonably
low rentals, to address a letter to the
lessee concerned and direct that the applicable terms be renegotiated
in order to remove
the prejudice. It, therefore, comes as no surprise
that on 28 October 2008 Transnet caused a letter to be addressed to
Reit in
which it pointed out that Reit’s leases ‘have
been identified as falling under review in the port of Durban.’
[15] Transnet’s letter just mentioned in the
preceding paragraph calls for closer scrutiny. And because of its
great import,
it is necessary to quote it in full. It was penned by a
Ms Linda Nodada who is designated as ‘Manager – Real
Estate,
Transnet National Ports Authority.’ It is headed: ‘RE
– AGREEMENTS OF LEASE BETWEEN EMERGENT INVESTMENTS (PTY)
LTD
AND THE TRANSNET NATIONAL PORTS AUTHORITY – MAYDON WHARF –
PORT OF DURBAN’. It reads:
‘
We
refer to the abovementioned subject, duly authorized.
The Transnet National Ports Authority (TNPA) has embarked on a
process of reviewing all our Agreements of Lease, with various
tenants – to align the contractual arrangements with our
designated functions as provided for in the
National Ports Act.
The
objectives of the lease review include, inter alia:
·
The
commercialization of lease terms and conditions to standardize our
leases.
·
Review
of onerous lease terms, terms heavily in favour of the tenant and
grossly prejudicial to the TNPA and other tenants on the
port.
·
Alignment of our leases with normal market
practices in the commercial real estate environment.
·
Assessing leases that have no direct or no port
related use – historically occupying our land.
·
Licensing of certain tenants in line with the
provisos in the Act.
Your leases have been identified as falling under this review in the
Port of Durban.
To this end, the TNPA has commissioned a valuation of the property
leased to yourselves and the table below outlines the leased
areas
and the applicable rates:
TENANT
EXTENT
CURRENT RATE/M2
CURRENT MONTHLY RENTAL
NEW RATE
/M2
NEW MONTHLY RENTAL
EMERGENT INVESTMENTS
4121
1.80
R 7 404.86
R 15.00
R 61 815.00
EMERGENT INVESTMENTS
5216
1.87
R 9 743.25
R 15.00
R 78 240.00
EMERGENT INVESTMENTS
10632
1.03
R 10 901.14
R 15.00
R 159 480.00
EMERGENT INVESTMENTS
6407
2.04
R 13 102.31
R 15.00
R 96 105.00
EMERGENT INVESTMENTS
3966
2.04
R 8 110.47
R 15.00
R 59 490.00
The rentals will escalate annually by 10% for the next five years,
whereafter the rentals will be reviewed by both parties to align
with
the prevailing market rate at the time. The leases will be reviewed
every five years thereafter until the date of expiry.
We are adamant that the discrepancy between the existing rental rates
currently charged and the prevailing market rate for the
leased
properties, be addressed.
We invite you for a meeting between the TNPA and your representatives
on Thursday, 27 November 2008. Kindly contact Colleen
Rampono on
(031) 361 8909 to confirm or arrange an alternative date for the
meeting.
The new rental rates and all other statutory conditions required for
these kinds of leases would be tabled via Declaration of rentals
and
or Addenda to the existing Agreements of Lease, which would
ultimately be signed by both parties through appropriate
authorization.
This correspondence is sent to you without prejudice to Transnet
National Ports Authority.
We look forward to your positive response.’
As can be observed from the illustration contained in
the table showing comparative figures, the increases proposed by
Transnet
clearly show that there was a substantial difference between
the then current rental of approximately R 49 260 per month and the
proposed increased rental which would push the rental to an
astronomical figure of some R 455 130 per month.
[16] The meeting requested by Transnet in its letter
dated 28 October 2008 was held between representatives of Transnet
and Reit
on 27 November 2008. Following this meeting, Transnet
advised Reit that its proposed rental rate was R 15 per square metre
per
month, exclusive of rates and taxes. Further discussions between
the parties ensued and after much to-ing and fro-ing the parties’
negotiations ultimately resulted in the conclusion of five
‘declaration of rental’ agreements which, save for
differences
in respect of the rental amount payable for each
property, were in identical terms.
[17] The material terms of the declarations of rental
read thus:
‘
WHEREAS
in terms of NOTARIAL DEED OF LEASE NO 62/1960L
dated 4 June 1960 and supplementary documents, the LESSEE hires from
the LESSOR Lease
28 on Portion 66 of Erf 10004, Durban, being portion
of the LESSOR’s land at Maydon Wharf abutting on the Bay of
Durban,
Province of KwaZulu-Natal.
AND
WHEREAS
the rental payable by the
LESSEE to the LESSOR has been reviewed in terms of the conditions of
lease.
AND
WHEREAS
the rental payable by the
LESSEE to the LESSOR has been reviewed in terms of
Sec 67.1(b)
of the
National Ports Act, Act
12 of 2005.
NOW, THEREFORE, THE PARTIES HEREBY DECLARE THAT:
In respect of the period 1 June 2009 to 31 May 2014 the annual rental
shall be the amount of Four Hundred and Twenty Five Thousand
Nine
Hundred and Twenty Rand Only (R45 920,00), (excluding V.A.T)
escalating at 10% (ten percent) per annum compounded.’
It bears emphasising that the new increased rentals were
intended to take effect from 1 June 2009 to 31 May 2014 subject to a
compound
10 per cent annual escalation.
[18] On 1 June 2009 Transnet caused a further letter to
be addressed to Reit in which it advised, amongst other things, that
other
than the terms reviewed and agreed to in terms of the
declarations of rental, it had no intention of varying the other
terms of
the leases. On 24 July 2009 Reit’s attorneys advised
Transnet that Reit had agreed, on a without prejudice basis, to sign
the declarations of rental subject to the following conditions:
‘
1.
Our clients agreement to increase the rental in accordance with the
declarations of rental and our client’s signature thereof
does
not constitute an acceptance by our client of Transnet’s
entitlement to rely of
Section 67
of the
National Ports Act, No 12
of 2005
to review the rental and/or lease agreements and our client
has agreed to the review process on a without prejudice basis and
without
waiving or novating any of its rights in this regard; and
2. Transnet shall not in future and for the duration of the remainder
of the lease periods attempt to again rely on
Section 67
of the
National Ports Act, No 12 of 2005
to enforce increased rentals or any
cancellation of the lease agreements; and
3. The increased rental amounts shall be paid by our client to
Transnet quarterly in arrears, in the same cycles as it has prior
to
the signature of the declarations of rental; and
4. All of the remaining terms and conditions as contained in the
various registered lease agreements will remain unchanged, unless
otherwise agreed to in writing between the parties.’
I
pause here to observe that the contents of paragraph 4 of this letter
are revealing. Their implication is that Reit unequivocally
accepted
that there had been a variation of the various leases in the respects
set out in the declarations and that other than
the agreed changes
‘
all of the
remaining terms and conditions as contained in the various registered
lease agreements will remain unchanged unless otherwise
agreed to in
writing between the parties
.’
(My emphasis.) Reit also contested Transnet’s entitlement to
invoke
s 67(1)
(b)
of the NPA.
[19]
Having signed the declarations of rental on 16 July 2009, Reit
dutifully paid the increased rental as contemplated therein.
Some few
weeks before the period covered by the 2009 declarations of rental
came to an end, Transnet instructed Mr Humphrey Moyo,
a professional
valuer, to prepare a fresh valuation of the properties leased by Reit
pursuant to clause 5(a)
[2]
of the notarial leases based, not on
a percentage of bare land value, but on the market related
rental with a view to determining
the rental which would be payable
in respect of the period of five years commencing on 1 June 2014 and
ending on 31 May 2019. Pursuant
to this valuation, Transnet prepared
new declarations of rental which it forwarded to Reit for signature
in terms of which the
new rental would be R 17 per square metre per
month.
[20] On 23 July 2014 Reit responded and advised that it
objected to the proposed rental and that it would instead appoint its
own
valuer to prepare its own valuation. To this end, Reit likewise
instructed JVR Valuations (Pty) Ltd (JVR) to prepare a valuation
on
its behalf based on a market-related rental of bare land. In the
interim, Transnet confirmed that Reit was at liberty to obtain
its
own valuation ‘if the lease agreement allows you to obtain your
own valuation’ and also reiterated that Mr Moyo’s
valuation was based on ‘the rental for land, excluding the
buildings . . . based on a comparison of rentals achieved for
other
leases in the Maydon Wharf precinct’.
[21] On 12 August 2014 Transnet wrote to Reit advising
the latter that its rental account was in arrears and imploring Reit
to pay
the invoiced amount in the interim ‘until the issue of
valuation has been sorted’. On the same day, Reit responded and
reiterated that it had not agreed to the latest valuation proposed
for the five-year period from 1 June 2014 to 31 May 2019. After
noting that it was being invoiced on the basis of the declarations of
rental that expired on 31 May 2014, Reit confirmed that,
pending the
resolution of the dispute, it would continue to pay the invoiced
amount ‘provided that if [they] have overpaid
from 1 June 2014
onwards . . . Transnet [would] refund or credit our account [with
the] said overpayment’.
[22] In due course Reit obtained its own valuation from
JVR and on 9 September 2014 representatives of the parties met with
JVR’s
representatives with a view to resolving the impasse.
Subsequently, Reit offered to pay R 11 per square metre per month
(i.e. R
1 more than what JVR had recommended in its valuation).
Still, these efforts did not bear fruit. It bears mentioning that the
fact
that Mr Moyo’s valuation and that of JVR were far apart
does not necessarily render either of the valuations questionable.
Radically divergent views as to the value of a thing are all too
common. For as Scott JA said in
Abrams v Allie NO and Others
2004 (4) SA 534
(SCA) para 25:
‘
.
. . This Court has in the past frequently commented on the nature of
the inquiry and hence the approximate nature of its result.
In
South
African Railways v New Silverton Estate Ltd
1946
AD 830
at 838 Tindall JA stressed the importance of bearing in mind
that a valuation “is to a material extent a matter of
conjecture”.
Ogilvie Thompson JA in
Estate
Marks v Pretoria City Council
1969 (3)
SA 227
(A) at 253A described a valuation as “essentially a
matter which is in the realm of estimate”. Botha JA in
Bestuursraad van Sebokeng v M & K
Trust & Finansiële Maatskappy (Edms) Bpk
1973
(3) SA 376
(A) at 391E similarly described it as “noodwending
‘n kwessie van skatting in die lig van al die omstandighede”.
Nothing, I think, demonstrates this more than the regularity with
which good and honest valuers arrive at relatively widely different
conclusions.’
[23] As the parties’ respective positions became
entrenched the negotiations floundered. It came to pass that on 17
October
2014 Reit suggested to Transnet that in view of the impasse
it would be best to invoke the dispute-resolution mechanism of the
notarial leases. The relevant clause that provides for
deadlock-breaking mechanisms in relation to the determination of the
rental
by Transnet is clause 5(b) and (c). For convenience its
provisions are repeated here. It reads:
‘
If
the Lessee is not prepared to accept the Administration’s
determination of the market value, it shall forthwith notify
the
Administration accordingly, whereupon the value shall be determined
by sworn appraisement as hereinafter provided.
Such appraisement shall be undertaken by a sworn appraiser to be
selected by the parties jointly. If the parties cannot agree on
the
sworn appraiser, each party shall appoint one sworn appraiser to
undertake the valuation jointly with the one appointed by
the other
party, and if these two appraisers cannot agree on their valuation,
they shall jointly select a third as umpire, whose
valuation shall be
final and binding on the parties. The cost of all appraisements shall
be borne by the parties in equal shares.
. . .’
[24] Relying on this clause, Reit proposed to Transnet
that the parties jointly appoint a sworn appraiser to determine the
market-related
value of the land. In response, Transnet instead
counter-proposed that as each party had already independently
obtained separate
valuations from their respective valuers it would
be sensible that they agree to submit the two disparate valuations to
the council
of the SACPVP to be reviewed by an umpire appointed by
the council to determine which one between the valuations of JVR and
that
of Mr Moyo ‘was the most appropriate’ and for the
costs expended therefor to be shared equally between Transnet and
Reit. Reit agreed to Transnet’s counter- proposal without
any reservations. The council in turn appointed Mr Seota
pursuant to the parties’ agreement who, after considering the
conflicting valuations, concluded that the rental determination
contained in Mr Moyo’s valuation ‘is fair and
reasonable’. Notwithstanding the ruling of the umpire, several
months passed without Reit signing the declarations of rental for the
five-year period under consideration despite undertaking
that this
was being attended to.
[25] The respective positions taken by the parties had
by now become hardened with Transnet contending that unless Reit took
Mr
Seota’s valuation as the umpire on judicial review it was
final and binding as provided for in clause 5(c) of the notarial
leases. For its part, Reit persisted in its stance that it stood by
its earlier tender of R 11 per square metre per month.
[26] When the parties’ best endeavours failed to
break the logjam, Reit instituted review proceedings in the Gauteng
Division
of the High Court, Johannesburg on 24 October 2017 for the
following relief:
‘
1.
. . .
2. The award of the second respondent . . . dated 4 May 2015 –
in which he determined the rental to be paid by the applicant
to the
first respondent . . . in respect of premises leased by the applicant
from the first respondent at the Durban Port known
as Maydon Wharf
(“the premises”) at R17m
2
per month – is
reviewed and set aside.
3. The first respondent . . . is hereby ordered to procure, within
twenty-one (21) court days of this Court’s order, a fresh
valuation of the land on which the premises are situated, in
accordance with the principles identified in the judgment of this
court.
4. . . .’
[27] On 9 May 2018 Reit amended its notice of motion and
sought an order in the following terms:
‘
1.
Declaring that the second respondent was appointed to act as an
expert valuator (and not an arbitrator) to value the land (“the
land”) (excluding any improvements constructed thereon) leased
by the applicant from the first respondent in terms of –
1.1 Notarial Deed of Lease K47/1960 concluded in 1960, annexed to the
founding affidavit marked “FA3”;
1.2 Notarial Deed of Lease K62/1960 dated 29 August 1960, annexed to
the founding affidavit marked “FA4”; and
1.3 Notarial Deed of Lease K63/1960 also dated 29 August 1960,
annexed to the founding affidavit marked “FA5”,
(collectively
“the notarial leases”)
2.
Declaring that the second respondent failed to execute his mandate in
terms of the notarial leases to value the land, excluding
any
improvements constructed thereon;
3. Declaring that the second respondent was not entitled in terms of
the notarial leases to determine a reasonable commercial rental
payable in terms thereof by the applicant;
4. Setting aside the second respondent’s valuation report dated
4 May 2015 (“the valuation report”) in terms
of which the
second respondent determined a reasonable rental payable by the
applicant in terms of the notarial leases instead
of the value of the
land;
5. Directing the first respondent to procure, within 21 days of this
Court’s order, a fresh valuation of the land, in accordance
with the principles identified in the judgment of this Court.
6. In the
alternative
to prayers 1 to 5 above and
should it be found that the second respondent was acting as an
arbitrator and not an expert valuator
in terms of the notarial
leases, the applicant seeks the following relief –
6.1 granting the applicant condonation for the late filing of its
review application;
6.2 reviewing and setting aside the valuation report in which the
second respondent determined the rental to be paid by the applicant
to the first respondent in respect of land;
6.3 directing the first respondent to procure, within 21 days of this
Court’s order, a fresh valuation of the land on which
the
premises are situated, in accordance with the principles identified
in the judgment of this Court.
7. The first respondent is ordered to pay the applicant’s
costs.’
[28] The review application came before Moshidi J, who
was persuaded that Reit had made out a case for the relief sought.
The learned
Judge held that (para 14):
‘
.
. .the crisp issue for determination is therefore the question:
whether Mr M C Seota NO (“
the
second respondent
”
), in making
the rental determination, failed to discharge his mandate in terms of
the notarial deeds of leases, to determine the
value of the land,
excluding the improvements constructed thereon, and by determining a
market-related rental for the premises
contrary to the express terms
of the notarial leases and if the second respondent was incorrect, as
contended by the applicant,
whether his determination is susceptible
to review and setting aside by the Court.’
[29] He held further that Mr Seota, who it was common
cause between the parties, did not act as an arbitrator but as an
expert valuer,
‘made a manifestly incorrect rental
determination; he failed to discharge his mandate in terms of the
notarial leases; .
. . He, instead, determined a market-related
rental for the premises . . . He had no authority and/or mandate to
do so, regardless
of what was submitted to him’. In the event
the learned Judge concluded that Mr Seota’s ‘determination
.
. ., was a nullity and of no force and effect’.
[30] Apropos
s 67
of the NPA, he held that this section
did not avail Transnet for at no stage were the notarial leases
amended ‘in the terms
alleged’ by Transnet. Nor could the
2009 declarations of rental assist Transnet because these were
subject to the conditions
that Reit had stipulated in the letter of
24 July 2009, addressed on its behalf by its attorneys to
Transnet. He therefore
concluded that this was quite apart from the
fact that Transnet had, in any event, not complied with the dictates
of
s 67
upon which it relied.
[31] Having concluded that the review application ought
to succeed, he granted an order that:
‘
1.
. . .
2.
The award of the second respondent (M C Seota NO) made on 4 May 2015
in which he determined the rental to be paid by the applicant
to the
first respondent (Transnet) in respect of premises leased by the
applicant from the first respondent at the Durban Port
and known as
Maydon Warf (“
the premises
”
)
at R17 m
2
per
month, is hereby reviewed and set aside.
3. The first respondent (Transnet), is hereby ordered to procure,
within twenty-one (21) court days of this order, a fresh valuation
of
the land on which the premises are situated, and in accordance with
the principles identified in this judgment.
4. . . .’
The correctness or otherwise of this order is what
confronts us in this appeal.
[32] Before the contentions of the parties are
considered, it is appropriate to say something about Mr Seota’s
role as umpire.
It is common cause between the disputants that Mr
Seota was an expert valuer and not an arbitrator. The fundamental
significance
of this distinction lies in this. Our law has for over a
century now always drawn a clear distinction between an arbitrator
and
a valuer. Thus, in
Estate Milne v Donohoe Investments (Pty)
Ltd and Others
1967 (2) SA 359(A)
at 373H-374C, Ogilvie Thompson
JA said the following:
‘
This
argument assumes something in the nature of an appeal to the
arbitrator against the decision of the auditor. That is, however,
not
the position. In making his valuation, the auditor hears neither
party. His is not a
quasi
-judicial
function. He reaches his decision independently on his knowledge of
the company's affairs. His function is essentially
that of a valuer
(
arbitrator, aestimator
),
as distinct from that of an arbitrator (
arbiter
),
properly so called, who acts in a
quasi
-judicial
capacity. The distinction between
arbitri
and
arbitratores
was well known to our writers (see e.g.
Voet
,
Bk. 4, 8, 2; Wassenaer,
Praktijk
Judicieel
, Ch. 26,
sec. 17
;
Huber
,
Bk. 4, chap. 21, secs. 1 and 2, and other authorities listed by
Gane
at p. 93 of vol. 2 of his translation of that
work). See also
Sachs v Gillibrand and
Others
,
1959 (2) SA 233
(T) at A p.
236, and
Divisional Council of Caledon v
Divisional Council of Bredasdorp
,
4
S.C. 445.
Voet
,
in the above-mentioned passage, distinguishes between the respective
functions of an arbitrator (
arbiter
)
and a valuer or referee (
arbitrator
)
and, in relation to the latter, uses the phrase
in
quibus viri boni arbitrio opus erat
.
This phrase is rendered by Sampson (p. 110) as “requiring the
arbitrament of an impartial person”, but by
Gane
(vol. 1, p. 738) as: “in which there is need
of the discretion of a good man”. Although the use of the word
“discretion”
may perhaps be open to criticism,
Gane’s
translation appears to me to reflect
Voet’s
meaning more correctly. The
arbitrator
or
aestimator
need not necessarily be an entirely impartial
person. In discharging his function he is of course required to
exercise an honest
judgment, the
arbitrium
boni viri
; but a measure of personal
interest is not necessarily incompatible with the exercise of such a
judgment (see
Dharumpal Transport (Pty.)
Ltd., v Dharumpal
,
1956 (1) SA 700
(AD)
at p. 707).’
[33] This distinction serves an important purpose in
review proceedings because, as Ponnan JA put it in
Lufuno
Mphaphuli & Associates (Pty) Ltd v Andrews and Another
[2007]
ZASCA 143
;
2008 (2) SA 448
(SCA) para 22:
‘
.
. . A finding that Andrews was a valuer would not assist Lufuno and
does not require a decision. Unlike an arbitrator, a valuer
does not
perform a
quasi
-judicial
function but reaches his decision based on his own knowledge,
independently or supplemented if he thinks fit by material
(which
need not conform to the rules of evidence) placed before him by
either party. Whenever two parties agree to refer a matter
to a third
for decision, and further agree that his decision is to be final and
binding on them, then, so long as he arrives at
his decision honestly
and in good faith, the two parties are bound by it. . . .’
[34] Accordingly, the power of the courts to interfere
with an expert’s decision in review proceedings is severely
circumscribed.
The juridical ambit of this power was described by
this Court in
Wright v Wright
[2014] ZASCA 126
;
2015 (1) SA
262
(SCA) para 10 as follows:
‘
The
position of a referee under
s 19b
is, as the high court correctly
found, similar to that of an expert valuator who only makes factual
findings but dissimilar to
that of an arbitrator who fulfils a
quasi-judicial function within the parameters of the
Arbitration Act
42 of 1965
. In this regard, the dictum of Boruchowitz J in
Perdikis
v Jamieson
is apposite:
“
It was held in
Bekker
v RSA Factors
1983 (4) SA 568
(T) that
a valuation can be rectified on equitable grounds where the valuer
does not exercise the judgment of a reasonable man,
that is, his
judgment is exercised unreasonably, irregularly or wrongly so as to
lead to a patently inequitable result.”
This
is also the position in respect of the referee’s report –
it can only be impugned on these narrow grounds.’
[3]
[35] I revert to the crux of the appeal. The foundation
upon which the edifice of the High Court’s reasoning rested
was, as
alluded to above, predicated on at least four principal
findings. These were: (i) Mr Seota’s mandate derived from the
notarial
leases as they stood in 1960; (ii) the terms of the mandate
given to him by Transnet and Reit jointly which were not consonant
with the terms of the leases were irrelevant (I interpose here to
remark that the implication of this finding is that Mr Seota should
have ignored his mandate and followed the notarial leases of which he
was not aware); (iii) because Mr Seota was an expert
valuer and
not an arbitrator his determination was not final and binding,
meaning that Reit was not precluded from impugning it;
and (iv) there
had been no variation of the 1960 leases for the 2009 declarations of
rental were incapable of effecting variations
as they were signed by
Reit conditionally.
[36]
The principal findings of the High Court bring to the fore the two
broad issues mentioned in para 1 above, which are what requires
determination in this appeal. I pause to observe that the difficulty
I have with the reasoning of the High Court relates to its
fundamental premise. It mischaracterised the nature of the dispute
between the parties. The crux of the dispute, as I see it, was
essentially whether Mr Seota had acted in accordance with his mandate
from the parties and, if so, whether his determination was
otherwise
manifestly unjust. On this score, Reit never even came out of the
starting blocks. Nowhere in its affidavits did Reit
allege, still
less establish, that Mr Seota had strayed outside the terms of his
mandate. Nor did Reit establish that Mr Seota
acted in bad faith,
dishonestly or in any other improper manner. Where no case was made
out to establish how and where Mr Seota
went wrong the High Court
should have been slow to interfere. (See in this regard:
S
A Breweries Ltd v Shoprite Holdings Ltd
[2007]
ZASCA 103
;
2008 (1) SA 203
(SCA) para 41 (
S
A Breweries
).
[37] It is necessary to emphasise that in the context of
the facts of this appeal, Transnet’s case is even stronger than
what
obtained in
S A Breweries
. Here, Mr Seota’s
determination was not assailed on any of the recognised grounds.
Reit, instead, was content to confine
its case to the assertions that
the determination was not consonant with clauses 3 and 4 of the
notarial leases. In
Telcordia Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA) para 51, Harms JA made the
following pointed remarks:
‘
Last,
by agreeing to arbitration the parties limit interference by courts
to the ground of procedural irregularities set out in
s 33(1) of the
Act. By necessary implication they waive the right to rely on any
further ground of review, “common law”
or otherwise. . .
.’
Although these remarks were made in the context of a
review of an arbitral award, they apply with equal force to the facts
of this
case. It is as well to remember that Mr Seota was at no stage
instructed by the parties to determine rental in terms of clause 3
of
the notarial leases. On the contrary, the parties’ clear and
unambiguous mandate to him was to compare two valuations
provided to
him by the parties and then determine which one ‘was the most
appropriate’. Having considered the valuations
placed at his
disposal by the parties, Mr Seota came to the conclusion that:
‘
The
rental determination as contained in the report by Humphrey Moyo is
fair and reasonable.’
[38] Thus, it was not open to him to disregard the
parties’ explicit instructions and, on a frolic of his own,
have regard
to the provisions of clause 3 of the lease (of which
incidentally he was unaware as neither party had alerted him to
them). In
reaching its conclusion to the contrary, the High Court
failed to see the wood for the trees and consequently committed a
fundamental
error. Mr Seota’s source of authority was not the
notarial leases but the joint mandate of the parties from which he
was
not at liberty to depart. In a comparable but different situation
this Court said the following in
Hos+Med Medical Aid Scheme v
Thebe Ya Bophelo Healthcare Marketing & Consulting (Pty) Ltd and
Others
[2007] ZASCA 163
;
2008 (2) SA 608
(SCA) para 30:
‘
In
my view it is clear that the only source of an arbitrator’s
power is the arbitration agreement between the parties and
an
arbitrator cannot stray beyond their submission where the parties
have expressly defined and limited the issues, as the parties
have
done in this case to the matters pleaded. . . .’
[39] It bears emphasising that in agreeing to a slight
deviation from the terms of the notarial leases, Reit was obviously
aware
of the provisions of clause 5(c) because this was the very
clause that it must have had in mind when it initially proposed to
Transnet
that the mechanism contained therein must be applied. But
when Transnet proposed a different method, Reit readily agreed. Thus,
the mandate given to Mr Seota was consonant with what both Transnet
and Reit had ultimately agreed to in the course of their
negotiations.
It can therefore hardly now lie in Reit’s mouth
to complain about or question the methodology consensually adopted to
break
the deadlock between the parties. In truth, at no stage was the
dispute between Transnet and Reit ever about the formula that JVR
and
Mr Moyo had adopted in determining the rental payable for the
five-year period between 1 June 2014 and 31 May 2019, namely,
the
market-related rental based on the value of the land, excluding
buildings.
[40]
On the authorities discussed above, it is now well established that
an expert’s bona fide determination or award will
not be
lightly interfered with by the courts. For as observed by Ponnan JA
in
Lufuno
:
[4]
‘
.
. . Whenever two parties agree to refer a matter to a third for
decision, and further agree that his decision is to be final and
binding on them, then, so long as he arrives at his decision honestly
and in good faith, the two parties are bound by it. . . .’
As already mentioned, in early May 2014 Mr Moyo was
instructed by Transnet to prepare a fresh valuation based on a
market-related
rental in respect of the five-year period commencing
from 1 June 2014 to 31 May 2019. And it was on this basis that the
parties
negotiated the issue of rental related to this period.
Indeed, Reit itself instructed JVR to prepare a valuation on the same
basis.
All of this is not disputed by Reit. On the contrary it is
accepted, if not explicitly, at the very least tacitly.
[41] But in pursuit of its review application, Reit
contended that all of this was irrelevant simply because what Mr
Seota did was
at variance with the express provisions of the leases.
No thought was given to how it came about that Mr Seota came into the
picture
as explained above. It therefore did not pertinently engage
Transnet’s case which was that the basis for determining rental
had changed once s 67 of the NPA was invoked by Transnet, culminating
in the 2009 declarations of rental. In response to a question
from a
member of the Bench, counsel for Reit was constrained to accept that
in 2009 a change occurred. He nevertheless argued that
this admitted
change was limited to the 2009 – 2014 five-year period. Beyond
that, argued counsel for Reit, the parties would
revert to the
initial formula provided for in the notarial leases in terms of which
it is the percentage of the value of bare land
that mattered. I do
not agree. Were this to be the case, this would have the effect of
putting the rental revision exercise that
Transnet embarked upon in
October 2008 to nought, meaning that s 67 of the NPA would, as a
result, be rendered nugatory. I
can think of no possible reason why
parties would engage in such an irrational and unbusinesslike
exercise.
[42]
The aforegoing conclusion would, in the normal course of events, have
been the end of the matter as it is dispositive of the
appeal. But
taking one’s cue from the decision of the Constitutional Court
in
S v Jordan and
Others (Sex Workers Education and Advocacy Task Force and Others as
Amici Curiae) 2002 (6) SA 642 (CC)
,
[5]
it is necessary to consider the
second leg of the argument advanced by Transnet. It is this. Transnet
contended that the various
notarial leases were validly amended to
provide for the determination of rental on a market-related basis,
albeit still limited
to the market value of the bare land.
[43] From Reit’s perspective, as its counsel urged
upon us at the outset of his address, the crux of the dispute between
the
parties concerns the question whether the notarial leases had at
any stage been varied. Accordingly, counsel for Reit implored us
to
determine this issue for failure to do so would, as he put it, result
in endless disputes between the protagonists. It is to
that aspect
that I now turn.
[44] As already indicated, in setting aside the umpire’s
determination the High Court held that a determination of the rental
payable under the notarial leases could only be properly done on the
basis of the notarial leases themselves, which provide that
the
rental is calculated on the basis of a set percentage of the market
value of the bare land, rather than simply a market related
rental. Reit embraced this finding as its springboard to argue that
absent a finding that the notarial leases were validly amended
to
provide for a market-related rental the reasoning of the High Court
is unassailable. This contention therefore entails that
the question
whether the notarial leases concerned were validly amended must be
confronted head-on.
[45]
The amendment or variation of the notarial leases at issue here is
governed by clause 18 thereof. This clause is not couched
in the
language of a typical non-variation clause. It says that ‘no
amendment or variation of the terms and conditions of
this lease in
any form or manner whatsoever
will
be recognised by or be binding upon the Administration
[6]
unless it has been embodied in a
formal written agreement duly executed by the Administration and by
the Lessee’. (My emphasis.)
[46]
It is now well established that a stipulation or condition in a
written contract that provides that any variation or amendment
of its
terms by the parties shall have no force or effect unless it is
reduced to writing is binding on the parties and cannot
be altered
verbally. (See in this regard:
S
A Sentrale Ko-Op Graanmaatskappy Bpk v Shifren and Another
1964 (4) SA 760
(A) at 766D-H.)
[7]
Nevertheless, our law recognises that
as a non-variation clause curtails the common law freedom to contract
it must be restrictively
interpreted. (See:
Randcoal
Services Ltd and Others v Randgold and Exploration Co Ltd
[1998] ZASCA 45
;
1998 (4) SA 825
(A) at 841E-842D.)
[47]
It is necessary to say something about the words ‘will be
recognised by or be binding upon the Administration’ contained
in clause 18 of the leases already quoted in para 11 above. As a
general rule, clause 18, being a non variation clause, must
be
construed restrictively. This is, however, not to say that if its
language is clear effect must not be given to it or that it
must be
interpreted otherwise than sensibly.
[8]
[48] In its heads of argument, Transnet submitted that
the requirements of clause 18 were complied with when the 2009
declarations
of rental were signed by the parties. It further argued
that in any event clause 18, particularly the words put in inverted
commas
in para 47 above are indicative of the fact that clause 18 was
inserted for the benefit of Transnet and not Reit. Thus, so proceeded
the argument, ‘There can be no issue at all if Transnet chooses
not to assert its rights in terms of the clause’.
[49]
I do not agree. To my mind the object of the clause is clear. It
offers Transnet an election to wave its rights flowing from
the
notarial leases if it chooses to do so. But it does not follow that
where the variation, as contended for by Transnet in this
case, which
imposes what, by all accounts, is an onerous financial obligation on
Reit is asserted clause 18 should not be accorded
its full effect.
Here the variation upon which Transnet relies has far reaching
implications for Reit in that it has the effect
of increasing the
rental payable by a substantial amount. A clause such as this, for
example, would only assist Transnet in circumstances
where a lessee
asserts that it has been released from its obligations under the
leases. If the release relied upon by the lessee
is not in writing
and signed by the parties, Transnet would not be bound but would be
at liberty to recognise the claimed release
if it so chooses. There
can be no doubt that the object of a clause such as this is to
protect Transnet and enable it to determine
its rights vis-à-vis
its several lessees by reference to documents in its possession. It
seeks to protect Transnet against
spurious defences by lessees who
might want to assert that they were released from one or some of the
obligations undertaken in
terms of the lease. (Compare:
Tsaperas
and Others v Boland Bank Ltd
[1995] ZASCA 150
;
1996
(1) SA 719
(A) at 724D-E.) This is all the more so considering that
Transnet is a large entity comprising different divisions with a
large
number of employees.
[50] Did the 2009 declarations of rental about which
there is no dispute between the parties have the effect of varying
the basis
for determining rental? More particularly, is their effect
that Transnet is now entitled to determine rental with reference to a
market-related rental, as opposed to a percentage of the market value
of the leased land, at the date of commencement of each succeeding
five-year period? Unsurprisingly, the protagonists answer this
question differently. Transnet says Yes, whilst Reit says No. The
High Court agreed with Reit and went on to hold that s 67 of the NPA
found no application to the dispute.
[51]
Whether the High Court was correct in taking this view of the matter
is the second leg of what confronts us in this appeal.
As I see it,
the answer to this question depends, first and foremost: (i) on the
interpretation to be ascribed to the section;
(ii) the evaluation of
the factual narrative recounted above; and (iii) the interpretation
of the 2009 declarations of rental,
of course, subject to the
conditions stipulated on Reit’s behalf. Section 67 opens with
subsec (1)
(a)
which deals with change of use of the
leased property found necessary in order to improve the safety,
security, efficiency and effectiveness
of the operations of the port.
It is not relevant for present purposes. It has no bearing on the
issue at hand whatsoever.
[52]
Subsection 1
(b)
which is central to the appeal has
already been quoted above. Its object is clear from the text. It
seeks to remove prejudice to
Transnet associated with the terms of a
long-term lease concluded before it came into operation – as
has happened in this
case – providing for, crucially in the
context of this appeal, unreasonably low rentals. It goes on to state
that the Ports
Authority (ie Transnet) may in writing direct the
lessee to renegotiate the rental in order to remove the prejudice.
The subsection
employs permissive language by using the word ‘may’.
But the reason for doing so is not far to seek because its invocation
is dependent upon it being found, firstly that the rental payable is
‘unreasonable low’ and, secondly, that such unreasonable
low rental is prejudicial to Transnet. Both factors entail a factual
inquiry and determination. Subsections 1
(c)
;
(2); (3) and (4) also find no application in this appeal. Although
subsec (2) is not germane to this case, the High Court appears
to
have given Transnet’s argument based on s 67 short shrift
because, in its view, Transnet had not followed its requirements
to
the letter before invoking them and was therefore precluded from
relying on them until it had fully complied with its prescripts.
In
this regard the High Court erred. So far as subsec (3) is concerned,
it too finds no application because here, when Transnet
invoked
subsec 1
(b)
on 28 October 2008 and the parties
commenced negotiations, they were able to reach an agreement. Hence
the 2009 declarations of
rental about which there is no dispute.
[53] However, what is in serious contention between the
parties is the question whether these declarations had the effect of
changing
the rental- determination basis for each of the
successive five-year periods beyond 31 May 2014. On this score,
diametrically
opposed contentions have been advanced by the parties.
In the view I take of the matter this aspect of the case lies in a
narrow
compass.
[54] The logical starting point in this exercise is the
2009 declarations of rental and the proper construction to be
ascribed to
them, read together with the letter of 24 July 2009 from
Reit’s attorneys. The contents of the 2009 declarations of
rental
have already been quoted in para 17 above and will not be
repeated here. The relevant part of the letter of 24 July 2009 reads:
‘
Having
regard to our latest e-mail of the 30
th
of June 2009, and in order to bring this matter to
a head, our client has instructed us to advise you that it will sign
the declarations
of rental in respect of the above leases in the
format presented by yourselves, however, the signature thereof are
strictly subject
to and conditional upon the following:-
1. Our clients agreement to increase the rental in accordance with
the declarations of rental and our client's signature thereof
does
not constitute an acceptance by our client of Transnet’s
entitlement to rely on
Section 67
of the
National Ports Act, No 12 of
2005
to review the rental and/or lease agreements and our client has
agreed to the review process on a without prejudice basis and without
waiving or novating any of its rights in this regard; and
2. Transnet shall not in future and for the duration of the remainder
of the lease periods attempt to again rely on
Section 67
of the
National Ports Act, No 1
2 of 2005 to enforce increased rentals or any
cancellation of the lease agreements; and
3. The increased rental amounts shall be paid by our client to
Transnet quarterly in arrears, in the same cycles as it has prior
to
the signature of the declarations of rental; and
4. All of the remaining terms and conditions a-; contained in the
various registered lease agreements will remain unchanged, unless
otherwise agreed to in writing between the parties.
Subject to the aforesaid conditions, we attach hereto the signed
declarations of rental in
respect of the various lease agreements.’
[55] As already indicated, the declarations of rental
were a culmination of protracted negotiations between the parties
over several
months which were triggered by the letter of 28 October
2008 addressed to Reit by Transnet. It bears repeating that in its
letter
of 28 October 2008, Transnet made plain that it had embarked
on a process of reviewing all of its agreements of lease with various
lessees with a view to aligning ‘the contractual arrangements’
with the NPA. In particular, it spelt out the current
rental that
Reit was hitherto paying in respect of its leases and the rental that
Transnet proposed to charge with effect from
1 June 2009 which was a
substantial increase. There is no dispute between the parties about
all of this and the fact that, properly
construed, the 2009
declarations of rental had the effect of changing the basis upon
which rentals payable under the notarial leases
from market value of
bare land to a market-related rental basis. Nevertheless, the parties
part ways on the question of whether
the admitted change was limited
to the five-year period between 1 June 2009 and 31 May 2009.
[56]
The rivalling contentions of the parties require that something, by
way of prelude, be said about the proper approach to the
interpretation of documents, be it contracts, statutes or any other
kind of document.
[9]
The approach to the interpretation of
documents is well settled. It was admirably explained by this Court
in
Natal Joint
Municipal Pension Fund v Endumeni Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) para 18 thus:
‘
.
. . The present state of the law can be expressed as follows.
Interpretation is the process of attributing meaning to the words
used in a document, be it legislation, some other statutory
instrument, or contract, having regard to the context provided by
reading the particular provision or provisions in the light of the
document as a whole and the circumstances attendant upon its
coming
into existence. Whatever the nature of the document, consideration
must be given to the language used in the light of the
ordinary rules
of grammar and syntax; the context in which the provision appears;
the apparent purpose to which it is directed
and the material known
to those responsible for its production. Where more than one meaning
is possible each possibility must be
weighed in the light of all
these factors. The process is objective, not subjective. A sensible
meaning is to be preferred to one
that leads to insensible or
unbusinesslike results or undermines the apparent purpose of the
document. Judges must be alert to,
and guard against, the temptation
to substitute what they regard as reasonable, sensible or
businesslike for the words actually
used. To do so in regard to a
statute or statutory instrument is to cross the divide between
interpretation and legislation. In
a contractual context it is to
make a contract for the parties other than the one they in fact made.
The “inevitable point
of departure is the language of the
provision itself”, read in context and having regard to the
purpose of the provision
and the background to the preparation and
production of the document.’
[57] Nearly two and a half years earlier, Lewis JA had
occasion to restate the principles of interpretation in
Ekurhuleni
Municipality v Germiston Municipal Retirement Fund
[2009] ZASCA
154
;
2010 (2) SA 498
(SCA)
(Ekurhuleni Municipality)
as
follows (para 13):
‘
The
principle that a provision in a contract must be interpreted not only
in the context of the contract as a whole, but also to
give it a
commercially sensible meaning, is now clear. . . The principle
requires a court to construe a contract in context –
within the
factual matrix in which the parties operated. . . .’
[58] In conclusion on this topic, reference may be made
to yet another decision of this Court in
Bothma-Batho Transport
(Edms) Bpk v S Bothma and Seun Transport (Edms) Bpk
[2013] ZASCA
176
;
2014 (2) SA 494
(SCA) where the following was stated (para 12):
‘
.
. . Whilst the starting point remains the words of the document . . .
the process of interpretation does not stop at a perceived
literal
meaning of those words, but considers them in the light of the
relevant and admissible context, including the circumstances
in which
the document came into being. . . Interpretation is no longer a
process that occurs in stages but is “essentially
one unitary
exercise” . . . .’
[59] The contentions advanced on behalf of Reit on this
aspect of the appeal rest, in essence, on two pillars. First, it was
contended
that the various notarial leases were never varied in line
with the requirements of clause 18 thereof. Secondly, it was further
submitted that absent a valid variation of the leases, Reit is not
obliged to pay the amount required of it by Transnet because
its
obligation to pay rental arises, not from the determination, nor the
instructions given to Mr Seota but, from the terms of
the notarial
leases. Relying on the reasoning in the judgment of the High Court,
counsel for Reit argued that
s 67
of the NPA only contemplates that
there must be a renegotiation of the terms of leases concluded before
it came into operation
and that if renegotiations fail, a declaration
of invalidity. Without a successful renegotiation of the terms of the
various leases
or failing that a declaration of invalidity, so went
the argument, the terms of pre-existing leases remain unaffected.
[60] In counter, counsel for Transnet contended that one
need only look at the language, context and purpose of the 2009
declarations
of rental to determine the purport of the declarations
having regard to the factual matrix in which the parties operated
since
October 2008. And that if this is done, the absurdity of the
interpretation for which Reit contends will be revealed. As to the
factual matrix in which the parties operated, it is necessary to
briefly deal with the preliminary objection raised by Reit in
relation to the parties’ renegotiations preceding the
conclusion of their agreement as recorded in the 2009 declarations.
It was argued that the content of the exchanges between the parties
is inadmissible because they relate to negotiations that were
conducted on a without prejudice basis. This issue can easily be
disposed of.
[61]
It is true that some of the letters which were exchanged between the
parties from the time when Transnet asserted its statutory
rights
under
s 67(1)
(a)
of the NPA and the general tenor of
the discussions at various meetings – some of which were
confirmed in subsequent correspondence
between the parties –
were written and the discussions conducted on a without prejudice
basis. Thus, ‘as a general
rule negotiations between parties
that are undertaken with a view to settling a dispute between them
are protected from disclosure’.
(See:
Absa
Bank Ltd v Hammerle Group
[2015]
ZASCA 43
;
2015 (5) SA 215
(SCA) para 13.) The rationale for this rule
is rooted in public policy. Parties to disputes are encouraged to
avoid litigation
by resolving their differences amicably through full
and frank discussions in the knowledge that, should the negotiations
fail
to bear fruit, any admissions made by them during their
negotiations will be protected from disclosure in the event of
litigation
ensuing. (See in this regard:
Naidoo
v Marine and Trade Insurance Co Ltd
1978
(3) SA 666
(A) at 677B-D;
KLD
Residential CC v Empire Earth Investments 17
[2017]
ZASCA 98
;
2017 (6) SA 55
(SCA) para 20.)
[62]
However, it bears emphasising that the rule is contingent upon the
failure of the negotiations. Where the settlement negotiations
succeeded and ultimately culminated in the conclusion of an agreement
– as has happened in this case – the content
of the
settlement negotiations can be disclosed in court and admitted as
evidence. This is premised on the fact that the basis
for
non- disclosure has fallen away. (See, for example,
Gcabashe
v Nene
1975 (3) SA
912
(D) at 914;
Adkins
and Hunter v M J Crosbie and F W Crosbie and M M Crosbie’s
Executors
1916 EDL
357
at 361.) In this case the parties’ settlement negotiations,
as already indicated, culminated in an agreement that led to the
production and signing of the 2009 rental declarations. Consequently,
Reit’s reliance on the privilege relating to the parties’
negotiations preceding the production of the 2009 rental declarations
is misplaced.
[63]
I now revert to the crux of the matter. As in
Ekurhuleni
Municipality
, the
considerations discussed above raise the question as to what, then,
was the commercially sensible, businesslike and reasonable
interpretation of the 2009 declarations read with the letter of 24
July 2009, regard also being had to their underlying purpose
and the
relevant background factual matrix? It is a fact that brooks no
argument to the contrary that the various long-term notarial
leases
were concluded in 1960. And that they will terminate by effluxion of
time only in 2029. Thus, if they run their full course
they will have
endured for almost 70 years. The inference is therefore irresistible
that this was one of the considerations that
led to the enactment of
the provisions of
s 67(1)
(b)
that took effect on 26 November 2006.
Pursuant thereto, Transnet addressed a letter to Reit proposing that
the terms of the five
notarial leases be renegotiated in relation to
the rental payable which was considered to be unreasonably low. The
basis of Transnet’s
proposed increase in the rental was, to
Reit’s knowledge, a market-related rental. It is common cause
that the renegotiations
succeeded in bearing fruit. Hence the signed
2009 declarations of rental coupled with the letter of 24 July 2009
from Reit’s
attorneys.
[64]
The High Court moved from the premise that
s 67
of the NPA found no
application because Transnet had not complied with its prescripts. It
then proceeded to hold that any oral
amendment of the notarial leases
would be ineffective as the leases ‘contain express
non-variation clauses’. For this
conclusion, it relied on
Shifren
stating that ‘the principles
thereof are still good law’. Finally, it held that the 2009
declarations of rental did
not avail Transnet because they do not
constitute amendments of the leases. I cannot agree.
[65]
A careful reading of the 2009 declarations read in conjunction with
the relevant letter leaves no room for any doubt as to
their purpose.
After the description of the parties, the preambles of the five
declarations all made reference to the notarial
leases. They
proceeded to proclaim that the rental payable by the lessee to the
lessor (these being references to Reit and Transnet
respectively) has
been reviewed in terms of
s 67(1)
(b)
of the NPA and the conditions
(presumably terms) of the leases. They then concluded by stipulating
the annual rental payable in
respect of the period 1 June 2009 to 31
May 2014, subject to a ten per centum annual escalation.
[66]
Reit seized upon the fact that the annual rental stipulated in the
declarations relates only to the five-year period from 1
June 2009 to
31 May 2014 to contend that the rental revision in terms of
s 67(1)
(b)
was specifically for that period and
no other. That cannot be for several reasons. First, to sustain
Reit’s contention would
entail disregarding the background
facts that gave rise to the production of the rental declarations and
the purpose to which they
were directed. Second, Reit’s
construction would undermine the legislative purpose of
s 67(1)
(b)
of the NPA. Third, one would have to
entirely ignore the material known to those responsible for the
production of the rental declarations
such as
s 67(1)
(b)
itself; the mischief it sought to
address which would, as a result, be perpetuated and the like. The
fact that Transnet would be
precluded from invoking
s 67(1)
(b)
again,
[10]
meaning that from 1 June 2014 until
2029 it would only be entitled to about a third of the annual rental
that it had enjoyed during
the five-year period immediately preceding
1 June 2014. And, lastly, the fact that Reit’s preferred
interpretation would
not be reasonable, sensible or businesslike.
[67] Indeed, condition 4 of the conditions stipulated by
Reit’s attorneys in their letter of 24 July 2009 is telling and
bears
repeating. It reads:
‘
All
of the remaining terms and conditions as contained in the various
registered lease agreements will remain unchanged, unless
otherwise
agreed to in writing between the parties.’
On a reasonable, sensible and businesslike reading of
the wording of this particular condition, it becomes manifest that
Reit itself
had accepted that the basis of calculating the annual
rental provided for in clause 3(b) was consensually varied in writing
to
a market-related rental whilst the unaffected terms of the leases
would remain unchanged ‘unless otherwise agreed to in writing
between the parties’. Any other interpretation of the rental
declarations coupled with the letter, as Reit would have it,
would
not be commercially sensible.
[68] In sum, that the 2009 rental declarations in their
operative clause expressly provided that the rental amount stated
therein
(subject to a ten per centum escalation) was in respect of
the period from 1 June 2009 to 31 May 2014 can easily be
explained.
Clause 3 of the long-term leases provides that rental is
to be determined periodically for a five-year period, hence the
five-year
period in this instance was from 1 June 2009 to
31 May 2014. However, by no means does this detract from
the overarching
objective of the parties initiated by Transnet in
October 2008 that the unreasonably low rentals hitherto payable in
terms of the
1960 leases needed to be renegotiated. Renegotiations
then ensued and a resolution was found. And the fact that in early
May 2014
Transnet, in keeping with the terms of the leases which it
understood to have been varied in respect of the rental determination
basis in 2009 already, proposed a revised rate of R 17 per square
metre per month for the succeeding five-year period from 1 June 2014
to 31 May 2019 reinforces this point.
[69] Moreover, to interpret the 2009 declarations of
rental in the way for which Reit contended, would not be sensible or
businesslike.
It would, in addition, not make economic and commercial
sense which is how contracts ought to be construed. The absurdity of
Reit’s
interpretation becomes stark when regard is had to the
fact that the rental payable would, in the result, be drastically
reduced
from some R 450 000 per month to a measly R 45 000
per month.
[70] Accordingly, I am satisfied that the appeal must
succeed with costs, including the costs occasioned by the employment
of two
counsel.
[71] In the result the following order is made:
1 The appeal is upheld with costs, including the costs
of two counsel.
2 The order of the court below is set aside and in its
place is substituted the following:
‘
The application for review is
dismissed with costs, including the costs occasioned by the
employment of two counsel.’
________________________
X M PETSE
DEPUTY PRESIDENT
Appearances
For
appellant: A M Annandale SC (with her J Thobela-Mkhulisi)
Instructed
by:
Hughes-Madondo
Inc., Durban
McIntyre
van der Post, Bloemfontein
For
Respondent: J J Brett SC (with him D Mahon)
Instructed
by: Vining Camerer Inc., Sandton
Honey
Attorneys, Bloemfontein.
[1]
Clause 4 of the leases provides:
‘
In
determining the market value of the land for the purposes of clause
3 hereof, account shall not be taken of the value of any
buildings
or other structures on the said land, but the fact that railway
siding facilities have been or can be provided, shall
be taken into
account.’
[2]
For convenience clause 5(a) is quoted again and
reads:
‘
The
Administration may, and if called upon by the Lessee shall, at any
time within three (3) months prior to the commencement
of any period
of five (5) years contemplated in clause 3 hereof, but excluding the
initial period referred to in paragraph (a)
of that clause,
determine the market value of the land and notify the Lessee of the
value so determined and of the rent which
will consequently be
payable in respect of the full period of five (5) years with
reference to which such determination was made.’
[3]
See also:
Civair
Helicopters CC v Executive Turbine CC and Another
2003
(3) SA 475
(W) para 34 and the authorities therein cited.
[4]
Lufuno Mphaphuli & Associates (Pty) Ltd v
Andrews and Another
[2007] ZASCA 143
;
2008 (2) SA 448
(SCA)
para 22.
[5]
See para 21. Although in
Jordan
the Constitutional Court was
dealing with a constitutional challenge on a number of grounds where
the High Court upheld one ground
and held that it was unnecessary to
deal with the remaining grounds, the principle remains the same for
all cases.
[6]
A reference to Transnet.
[7]
Shifren
has been consistently followed in a series of
judgments of this Court such as
Brisley v Drotsky
2002 (4) SA
1
(SCA) and
Tsaperas and Others v Boland Bank Ltd
[1995] ZASCA 150
;
1996 (1) SA
719
(A) at 725 B-C.
[8]
See for example:
Natal Joint Municipal Pension Fund v Endumeni
Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) paras 18 and
23.
[9]
See for example:
Bastian Financial Services (Pty) Ltd v General
Hendrik Schoeman Primary School
[2008] ZASCA 70
;
2008 (5) SA 1
(SCA).
[10]
This was expressly agreed to between the parties in the
correspondence exchanged between them because Transnet was
understandably
of the opinion that it could invoke
s 67(1)
(b)
to regulate the remaining period of the notarial leases only once.