2
Held: On a proper interpretation of clause 4.1.1, the parties intended that the Defendant had
undertaken to have a production capa city of 5000MT per month by 1 February 2016. Having
failed to comply with this undertaking, the Plaintiff was not obliged to comply with its
undertaking in clause 4.1.2 of the agreement and did not order 60 000MT of pelletized
product on a take or pay basi s at a rate of 5000MT per month and clause 4.1.3 of the
agreement did not apply. In the circumstances, the Plaintiff had not breached any take or pay
undertaking and the Defendant’s counterclaims are dismissed.
Held: The Plaintiff was entitled to claim con tractual restitution of advance payments it had
made to the Defendant for which it had not received the concomitant pelletized product by
the date of the termination of agreement by effluxion of time on 31 January 2017, but only in
respect of advance payme nts made post the date of the conclusion of the agreement on 1
December 2015.
The Plaintiff’s claim alternative claim 1 and claim 3 were granted with mora interest from
date of demand.
The Plaintiff’s claim 2 was absolved from the instance.
The Defendant was ordered to pay the Plaintiff’s costs of action and the costs of defending
the Defendant’s counterclaims on scale C of Rule 67A read with Rule 69 of the High Court
Rules.
JUDGMENT
KAIRINOS AJ:
1. This matter arises from a commercial dispute between the Plaintiff and Defendant
pursuant to the conclusion, partial execution and eventual termination of a written
agreement concluded between them, called the “Initial Manufacturing A greement”
(the “ IMA ”), which was concluded on 1 December 2015 .
2. The IMA provided for the manufacture by the Defendant for the Plaintiff of
Pelletized Product (“the product”) from raw material (limestone and gypsum) (“the
raw material”) supplied by the Plain tiff at an agreed fee. The product to be
manufactured under the IMA was a solid pellet -like product known as ‘prills’ which
is used in the agricultural sector to provide a controlled slow release of nutrition to
plants. The prill s are sown by farmers onto their lands and when it becomes wet –
either from rainwater or irrigation - it dissolves and releases nutrients into the
3
ground. The benefit and advantage of this over sowing powder limestone products
onto the lands, is that due the solid form and weight o f the prill , it not blown away
by winds before water is introduced.
3. The IMA was either cancelled by the Defendant in January 2017 or it expired by the
effluxion of time (despite the Plaintiff purporting to cancel the agreement in
February 2017 based on an alleged repudiation thereof by the Defendant in
purporting to cancel it in January 2017 ).
4. Both parties seek to hold the other liable for breaches of the IMA .
5. The Plaintiff instituted three claims:
5.1. Claim 1 – payment of the sum of R1 604 150, alternatively R1 334 254 ,
being repayment of advance payments made by the Plaintiff to the
Defendant for the pelletizing of the raw materials , in respect of which
product was not delivered by the Defendant.
5.2. Claim 2 - payment of the sum of R945 181, being the value of ra w material
supplied by the Plaintiff , which was used by the Defendant, but which
resulted in 1 279 MT of oversized pellets which were incapable of being
rework ed or resold and rendered waste .
5.3. Claim 3 - payment of the sum of R83 488 , being the amount outsta nding in
respect of bags supplied by the Plaintiff to the Defendant for which the
Defendant undertook to pay, but failed to do so.
4
6. The Defendant defended the Plaintiff’s action and in turn instituted a counterclaim
for payment of the sum of R17 885 400 bas ed upon the following alternative causes
of action:
6.1. specific performance of the Defendant's "take or pay" rights under the IMA;
6.2. alternatively , contractual damages suffered by the Defendant as a result of
the Plaintiff's breach of the IMA.
7. The following is sues a re common cause between the parties on the pleadings or
became common cause during the course of the trial :
7.1. Prior to the conclusion of the IMA and 23 July 2015, the parties concluded
an agreement (“the prior agreement”) for the pelletization of 24 00 0 MT of
limestone raw material by the Defendant for the Plaintiff, which agreement
was recorded in writing and which resulted in the placement of an order by
the Plaintiff on the Defendant for 24 000 MT of pelletized limestone
product (gypsum was not part of the prior agreement) .
7.2. On 1 December 2015, the parties entered into the IMA on the written terms
thereof.
7.3. On 1 February 2016, the Defendant did not have production capacity of at
least 5000 MT per month.
7.4. The Defendant’s new plant was only commissioned du ring May 2016 and
began production from 1 June 2016.
5
7.5. The Plaintiff made advance payments to the Defendant in the sum of
R1 604 150 for product which was not delivered to it by the Defendant
made up as follows:
7.5.1. 571 tons of limestone granules;
7.5.2. 961 tons of gy psum granules.
7.6. The Defendant did not produce 60 000 MT of product during the twelve -
month production period of the IMA, being 1 February 2016 until 31
January 2017.
7.7. The Defendant produced product in smaller quantities than 5000 MT per
month .
7.8. The Plaintiff delivered some raw materials to the Defendant from time to
time.
7.9. There were bags unaccounted for by the Defendant upon a reconciliation of
the number of bags allegedly supplied on behalf of the Plaintiff to the
Defendant, which resulted in an oral agreemen t between the parties that the
Defendant would compensate the Plaintiff for the cost of the missing bags
in the total sum of R125 232,59 by way of three monthly payments of R41
744,20.
7.10. The Plaintiff recovered one payment of R41 774,20 by way of set -off.
6
8. The list of issues in dispute on the pleadings was extensive but ultimately
crystallized into the following main issues in dispute (although each had a number of
potential sub -issues) :
8.1. Whether the Plaintiff had correctly pleaded and/or proved a case entitli ng it
to repayment of the advance payments and what the correct cause of action
for such repayment would be if the IMA had expired by effluxion of time;
8.2. The factual correctness of the calculations on annexure "POC2" of advance
payments made in respect of l imestone and gypsum respectively for which
no finished product was received from the Defendant under the IMA.
8.3. Whether the Plaintiff supplied sufficient raw materials for the manufacture
of the product related to the advance payments by the Plaintiff.
8.4. Wheth er a portion of the adv ance payments were made in respect of the
prior agreement and whether such advance payments were claimable as
contractual restitution pursuant to the cancellation or termination of the
IMA.
8.5. Whether on a proper interpretation of claus e 4.1.1 of the IMA, the
Defendant had undertaken to have a production capacity of at least 5000MT
of product per mont h by 1 February 2016, or whether it by 1 February 2016
merely had to have taken the necessary steps to have a production capacity
of at lea st 5000 MT of product per month (even if it did not have such
production capacity available by 1 February 2016);
8.6. In the event that the Plaintiff had undertaken to order 60 000MT of product
per annum on a take or pay basis at the rate of 5000MT per month du ring
7
the production period as per clause 4.1.2 and the Defendant had failed to
produce material at the rate of 5000 MT per month , whether the Defendant
was entitled to “catch -up” its production in the amount of a total of 60
000MT per annum prior to the te rmination of the IMA on 31 January 2017;
8.7. Whether the Defendant was entitled to enforce its "take or pay" rights upon
termination of the IMA.
8.8. Whether the Defendant's claim for payment, alternatively damages,
amounts to R17 885 400. 00.
8.9. The fate of the prior agreement upon the conclusion of the IMA on 1
December i.e. w hether the prior agreement of July 2015 was repudiated by
the Defendant or whether the IMA superseded the earlier agreement or
whether the separate agreement ceased to exist on the conclusion of the
IMA .
8.10. Whether the q uantities of p roduct to be purchased on a take or pay basis
would be subject to pro -rating if the Defendant was only able to have a
production capacity of at least 5000 MT of product per month from some
time after 1 February 2016.
8.11. Whe ther the Plaintiff proved its case in respect of the quantum of th e non -
specification p roduct by th e Defendant as per annexure "POC 3" of the
Plaintiff's Particulars of Claim ; the value of the los t and wasted p roduct and
raw material in terms of the Plainti ff’s second claim and whether the
Plaintiff had or was compelled to comply with the prescribed procedure for
rejection of non -complying products set out in the IMA.
8
8.12. Whether the Plaintiff breached the IMA by failing to supply the Defendant
with sufficient r aw materials.
9. It is immediately apparent from the list of disputed issues that many are in fact
interrelated. However, it is also immediately apparent from the pleadings and the
issues in dispute that the determinatio n of the issues is largely predicated o n a prop er
interpretation of the material terms of the IMA.
10. Ultimately and as it transpired, the main issue in the matter became whether clause
4.1.1. on its proper interpretation, meant that the Defendant had to take the necessary
steps to establish a pro duction capacity of at least 5000 MT of product by 1 February
2016, i.e. whether the Defendant had to have such production capacity by 1 February
2016 as contended by the Plaintiff ; or whet her the Defendant merely had to have
taken the necessary steps by 1 February 2016 to establish the said production
capacity, i.e. whether the mere taking of the necessary steps by 1 February 2016 was
sufficient to have fulfilled its undertaking in clause 4.1.1, even if the production
capacity had not de facto been establi shed by 1 February 2016 , as contended by the
Defendant . The proper interpretation of clause 4.1.1 therefore became determinative
of most of the remaining issues in the matter.
11. The evidence of the following witnesses was led during the trial:
11.1. For the Plaint iff:
11.1.1. Mr Bertus Wessels (" Wessels "), the Plaintiff's business
development manager at the relevant time;
9
11.1.2. Mr Jaco Vorster, the Plaintiff’s Chief Financial Officer and
during the relevant period, the Plaintiff’s Head of Acquisitions
and Integration;
11.1.3. Mr Robert Behrens, who at the relevant time was employed
with the Plaintiff as a financial accountant;
11.1.4. Mr Robert Ziemerink, who was employed during the relevant
period by the Plaintiff as a despatch field supervisor.
11.2. For the Defendant:
11.2.1. Mr Andrew Wilmot, the managin g director of the Defendant;
11.2.2. Mr Louis Klue, the Defendant’s operational manager,
11.3. Mr Troy Colin Momberg, the Defendant’s expert.
12. The evidence led by the respective parties related largely to the contextual
background of the IMA and the circumstances which led to the dispute between the
parties. Much of the evidence related to the Defendant’s counterclaim and its
quantification.
13. It is therefore to the proper interpretation of clause 4.1 that I now turn since this was
the burning issue upon which most if not all the disputed issues are to be determined .
14. In relation to the proper interpretatio n of the agreement, it is accepted law that the
proper interpretation of an agreement must take place in its context as set out in the
leading case of Natal Joint Munici pal Pension Fund v Endumeni Municipality 2012
10
(4) SA 593 (SCA) at paras [18] and [25] – [26], where the Supreme Court of Appeal
held as follows in this regard:
“[18] Over the last century there have been significant developments in the law
relating to the interpretation of documents, both in this country and in others that
follow similar rules to our own. It is unnecessary to add unduly to the burden of
annotations by trawling through the case law on the construction of documents in
order to trace those dev elopments. The relevant authorities are collected and
summarised in Bastian Financial Services (Pty) Ltd v General Hendrik Schoeman
Primary School. The present state of the law can be expressed as follows:
Interpretation is the process of attributing meani ng 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 atten dant 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 i t 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 th e 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 'inevi table 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.
. . .
[25] Which of the interpretational factors I ha ve mentioned will predominate in any
given situation varies. Sometimes the language of the provision, when read in its
particular context, seems clear and admits of little if any ambiguity. Courts say in
such cases that they adhere to the ordinary grammati cal meaning of the words used.
However, that too is a misnomer. It is a product of a time when language was
viewed differently and regarded as likely to have a fixed and definite meaning; a
view that the experience of lawyers down the years, as well as the study of
linguistics, has shown to be mistaken. Most words can bear several different
meanings or shades of meaning and to try to ascertain their meaning in the abstract,
11
divorced from the broad context of their use, is an unhelpful exercise. The
expressi on can mean no more than that, when the provision is read in context, that is
the appropriate meaning to give to the language used. At the other extreme, where
the context makes it plain that adhering to the meaning suggested by apparently
plain language w ould lead to glaring absurdity, the court will ascribe a meaning to
the language that avoids the absurdity. This is said to involve a departure from the
plain meaning of the words used. More accurately it is either a restriction or
extension of the languag e used by the adoption of a narrow or broad meaning of the
words, the selection of a less immediately apparent meaning or sometimes the
correction of an apparent error in the language in order to avoid the identified
absurdity.
[26] In between these two ex tremes, in most cases the court is faced with two or
more possible meanings that are to a greater or lesser degree available on the
language used. Here it is usually said that the language is ambiguous, although the
only ambiguity lies in selecting the pro per meaning (on which views may
legitimately differ). In resolving the problem, the apparent purpose of the provision
and the context in which it occurs will be important guides to the correct
interpretation. An interpretation will not be given that leads to impractical,
unbusinesslike or oppressive consequences or that will stultify the broader operation
of the legislation or contract under consideration. ”
15. The Constitutional Court has cited with approval the aforementioned principles in
Airports Company So uth Africa v Big Five Duty Free (Pty) Ltd and Others 2019 (5)
SA 1 (CC) where this Court held as follows at paragraphs [29] and [30]:
“[29] There is no dispute about the principles of interpretation. The correct
approach to the interpretation of documents was summarised by the Supreme Court
of Appeal in Endumeni Municipality
'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 prov ided 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 ligh t 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
12
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 legis lation; 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.' [27] [Footnotes omitted.]
[30] I begin then with the 'inevitable starting point', the language of the settlement
agreement itself. ”
16. However, in Tshwane City of v Blair Atholl Homeowner s Association 2019 (3) SA
398 (SCA), the Supreme Court of Appeal held that negotiations are nevertheless
inadmissible as evidence in the contextual setting and held as follows at paragra phs
[76] and [77] :
“[76] Insofar as the admissibility of evidence in r elation to negotiations is
concerned, this court has recently, in Van Aardt v Galway 2012 (2) SA 312 (SCA),
para 9, with reference to Van Wyk NO v Rottcher's Saw Mills (Pty) Ltd 1948 (1) SA
983 (A) at 991, reaffirmed that evidence of the intention of the p arties of their prior
negotiations is inadmissible. In Delmas Milling Co Ltd v Du Plessis 1955 (3) SA
447 (A) at 454 the court excluded, as a general rule, reference to 'actual'
negotiations and 'similar statements'. It is true that at 455A – C there is a suggestion
that 'conceivably', in contractual cases where, after regard is had to surrounding
circumstances, the ambiguity in a written text persisted, one could have regard to
what passed between the parties. It must be understood that this statement fol lowed
on what was understood to be admissible in relation to testamentary documents. It is
also true that in Coopers & Lybrand and Others v Bryant 1995 (3) SA 761 (A)
([1995] 2 All SA 635; [1995] ZASCA 64) at 768D – E, the passage from Delmas at
455A – C is Navsa ADP and Mothle AJA (Swain JA, Dambuza JA and Mokgohloa
AJA concurring) cited as support for the view that evidence of negotiations could, in
the face of enduring ambiguity, be admitted.
13
[77] In our view, Van Aardt and Van Wyk should be followed. It would be in line
with the parol evidence rule which we imported and have maintained and it is
consonant with the modern approach to interpretation of contracts in English law,
the development of which mirrors developments in our law. Allowing evidence in
relation to negotiations will see further extensive evidence being led and will have
the effect of minimising the words the parties have chosen to employ. Endumeni
rightly emphasises the significance of the words the parties have chosen to record
their agr eement, though not above context. Permitting evidence of negotiations will
lead to further uncertainty. The words, as an objective measure, are elevated above
the partisan positions of parties in negotiations and litigation. ”
17. The Supreme Court of Appeal in Capitec Bank Holdings Limited v Coral Lagoon
Investments 194 (Pty) Ltd 2022 (1) SA 100 (SCA), held as follows at paragraphs
[51]:
“51] Most contracts, and particularly commercial contracts, are constructed with a
design in mind, and their architects cho ose words and concepts to give effect to that
design. For this reason, interpretation begins with the text and its structure. They
have a gravitational pull that is important. The proposition that context is everything
is not a licence to contend for meani ngs unmoored in the text and its structure.
Rather, context and purpose may be used to elucidate the text.”
18. The subsequent conduct of the parties and how they implemented the contract, is also
important in determining their intention as part of the factual context. In this regard,
it was held as follows in Unica Iron and Steel (Pty) Ltd and Another v Mirchandani
2016 (2) SA 307 (SCA) at para [21]:
“All that needs to be added is that it can be accepted that the way in which the
parties to a contract carried out their agreement may be considered as part of the
contextual setting to ascertain the meaning of a disputed term — see eg Rane
Investments Trust v Commissioner, South African Revenue Service 2003 (6) SA 332
(SCA) (2003 (8) JTLR 216; 65 SATC 333; [2003] 3 All SA 39) para 27. As is stated
in Christie & Bradfield Christie's The Law of Contract in South Africa 6 ed (2011)
at 117, relying upon Breed v Van den Berg and Others 1932 AD 283 at 292 – 293,
14
this is because the parties' subsequent conduct 'may be pro bative of their common
intention at the time they made the contract'. ”
19. Interpretation is accordingly a so -called ‘unitary endeavour’.1 Moreover the
interpretation of a contract is a matter for the court, not witnesses.2
20. Before dealing with the salient te rms of the IMA and the proper construction thereof,
it is therefore necessary to place the IMA in its proper context. Fortunately, the
parties were largely ad idem as to how the IMA arose, its contextual background and
its purpose .
21. The factual background to the dispute (including the context in which the IMA was
concluded ), is that during or about March 2015 the Plaintiff and another firm,
Advanced Agri, decided to jointly introduce an ultra -fine limestone product into the
agricultural fertiliser market in South Africa with the Plaintiff being responsible for
its production and Advanced Agri being responsible for sales thereof. Advanced
Agri introduced the Plaintiff to the Defendant as the possible manufacturer of the
product. By “manufacture” is mean the p elletization of the powder raw materials
into pellets or “prills”.
22. The relationship between the Plaintiff and the Defendant commenced with a
presentation made by Klue on behalf of the Defendant on 8 May 2015. At that time
the Defendant had as single produc tion plant with a capacity of approximately 1 500
tons of granulated product per month. The Defendant agreed to upgrade the old
plant to a capacity of 2 000 MT per month and following a test order placed by the
1 MEC, Department of Public Works and Others v Ikamva Architects and Others 2022 (6) 275 (ECB) at
par [41]. See also University of Johannesburg v Auckland Park Theological Seminary and Another 2021
(6) SA 1 (CC)
2 KPMG Chartered Accountants (SA) v Securefin Ltd and Another 2009 (4) SA 399 (SCA)
15
Plaintiff on 22 May 2015, the Plaintiff plac ed an order for 24 000 MT of pelletized
limestone on 23 July 2015 , to be produced at volumes of 2 000 MT per month for 12
months starting in August 2015. An agreement was reached that should the
Defendant not be able to produce 2000 MT within a sp ecific mo nth, the shortfall
would be made up in the following month . This was the prior agreement referred to
above . There i s a dispute whether this prior agreement ceased to exist or was
subsequently replaced by the IMA and this issue also turns on the proper
interpretation of the IMA. Production on the 24 000 -ton order started on or about 6
August 2015.
23. The Plaintiff then required additional a nd more reliable production of p roduct and
negotiations took place between the Plaintiff and the Defe ndant during October and
November 2015 for an order of 5 000 MT per month of products (being limestone
and gypsum) for an initial period of 12 months from 1 February 2016 to 31 January
2017, to be manufactured by a new modular pelletization plant (sometimes referred
to during the trial as “a granulation plant”) to be built and commissioned by the
Defendant.
24. On 1 December 2015, the parties concluded the IMA . During January 2016, the
Defendant obtained finance from Standard Bank for the construction of the new
plant and during th e period December 2015 to May 2016, the new plant was built,
commissioned and production started on 1 June 2016. This despite the IMA
providing for the “production period” to be a twelve -month period from the date on
which the new plant was commissioned or 1 February 2016, whichever date was the
earlier.
16
25. During October 2016, a dispute arose between the Plaintiff and the Defendant as the
latter was of the view that there was not a sufficient volume of raw materials bei ng
supplied by the Plaintiff to the Defe ndant for it to achieve 5000 MT per month.
26. On 28 November 2016, the Defendant again complained of shortfalls in limestone
deliveries by the Plaintiff (it being common cause that the Defendant would supply
the gypsum raw material and not the Plaintiff) , con tending that the arrears amounted
to more than 18 000 MT over the preceding six months and by 3 650 MT in
November 2016 alone. The Defendant asserted that, in addition to the 50 000 MT of
limestone granulation agreed to in the IMA, there was also the addi tional prior order
for 24 000 tons of limestone granules of July 2015. It was contended by the
Defendant that the continued raw material delivery shortfalls were having a
devastating effect on the Defendant's daily production and cost r ecoveries. The
Defe ndant contended that it required sufficient buffer stocks of raw material (i.e.
1000 MT) to be able to run the plant continuously since continuous stop -start would
affect the variable costs of the plant since it required huge loads of electricity to fire
up the furnace if it had cooled down.
27. On 30 November 2016, Mr Behrens , on behalf of the Plaintiff , indicated to the
Defendant that the original order number for the 24 000 MT was completed and that
the Defendant should use another order number from that dat e.
28. On 13 December 2016, the Defendant again complained of the Plaintiff's inability to
deliver limestone raw material . It is at this juncture important to record that all the
Defendant’s complaints to the Plaintiff about insufficient raw materials being
supplied related to buffer stock that was required to run the plant efficiently to
reduce the variable costs and not specifically to an agreed 5000 MT per month. It
17
was only during the latter part of 2016 that the Defendant began to refer to 5000 MT
per mont h and the take or pay referred to in the IMA .
29. On 20 December 2016, the Plaintiff proposed an addendum to the IMA with effect
from 1 December 2016, which provided for the parties to agree that any production
amounts and/or Pelletized Product required to be manufactured by the Defendant
and/or purchased by the Pla intiff in terms of the IMA would be terminated and be
replaced in their entirety by a required production of 10 000 MT of Pelletized
Product in terms of the addendum. The addendum was not accepted b y the
Defendant.
30. On 18 January 2017, the Defendant purported to cancel the IMA. The IMA wo uld in
any event have lapsed by effluxion of time , on 31 January 2017.
31. On 14 February 2017, the Plaintiff informed the Defendant tha t it regarded the
Defendant’ purpo rted cancellation of the IMA as a repudiation of the agreement,
which repudiation the Plaintiff accepted, and it made demand for payment by the
Defendant.
32. Having regard to all the evidence in the trial, the purpose of the IMA , in general
terms, was to esta blish a contractual relationship between the Plaintiff and the
Defendant in terms of which the Defendant would use it production plant to pelletize
the raw material supplied to it by the Plaintiff at an agreed price. The “purpose” is of
course different to the “how”. The details of the “how” are to be found in the terms
of the IMA.
33. Having placed the IMA in its proper context, one must then turn to the “inevitable
starting point” being the language of the IMA itself. I refer below to the
18
uncontentious clause s of the IMA because the contentious clause must be interpreted
in the context of the remaining clauses of the IMA so as to ascertain what the parties
probably intended.
34. In terms of uncontentious clauses of the IMA, the Plaintiff's main obligations were
the following:
34.1. To place all orders and instructions on the Defendant in terms of the IMA.3
34.2. To ensure that it delivers the raw material as advised by the Defendant from
time to time.4
34.3. To supply gypsum within a specification agreed between the parties from
time to time.5
34.4. To pay the Defendant at the rat e of R570 per MT of p roduct produced with
limestone and R600 per MT of p roduct produced with gypsum.6
34.5. To make such payment, for the initial 3 000 MT of p roduct, in respect of
each 1 000 MT to be produced, prior t o production and on receipt of a valid
tax invoice from the Defendant.7
34.6. To make payment thereafter on completion of each 15 da ys of production
of product and on receipt of a valid tax invoice from the Defendant.
35. The Defendant's main obligations under the I MA were:
3 Clause 3.1.1.1.
4 Clause 3.1.1.2. (The term "Raw Material" is defined as ultrafine limestone or similar material used to
manufacture the Pelletized Product, which may include gypsum powder").
5 Clause 3.1.1.4.
6 Clause 3.1.1.3.
7 Clause 3.1.1.3.1.
19
35.1. To take receipt of the raw materials and to warehouse same under suitable
conditions, as advised by the Plaintiff, to ensure the integrity and longevity
of the raw materials.8
35.2. To manufacture the r equired mass of the p roduct within the required
timeframe, as specified and ordered by the Plaintiff from time to time.
Upon manufacture, t he ownership of the p roduct, on making full payment
to the Defendant, would immediately vest in the Plaintiff.9
35.3. The Defendant would not be held responsible for "produ ction shrinkag e"
which the parties agreed , in the case of limestone, would not be more than
3% but may, in the case of gypsum, be as high as 30%.10
35.4. To produce p roduct to the specification as set out in annexure "B" to the
IMA.
35.5. To bag the p roduct as required for immediate transportation or for storage,
to warehouse the p roduct under suitable condition s, as advised by the
Plaintiff and to ensure the integrity a nd longevity of the p roduct until such
time that the necessary logistical arrangements for upli fting the p roduct
were confirmed by the Plaintiff.11
35.6. To keep stock of all raw materials , product and bags supplied under the
terms of the IMA, as advised by the Plaintiff.12
8 Clauses 3.2.1.1 and 3.2.1. 2.
9 Clause 3.2.1.4.
10 Clauses 3.2.1.4.
11 Clauses 3.2.1.6 and 3.2.1.7.
12 Clause 3.2.1.9.
20
35.7. To undertake a monthly stocktake, with representatives of the Plaintiff, to
ensure that al l raw mate rials and p roduct was accounted for.13
35.8. To comply with all applicable safety, health and environmental laws and
regulations.14
35.9. To comply with the agreed quality requirements with regard to the
specification and other related qualities.15
35.10. The Defendan t would not release any p roduct for shipment that did not
conform to the specification, without the prior written approval of the
Plaintiff.16
35.11. The Plaintiff could advise of any non -complying product by providing
notice of rejection to the Defendant within t en days following receipt by the
Plaintiff of a ny shipment of such p roduct.17
35.12. In addition to any other rights or remedies available to the other parties
under the IMA, the Defendant would replace rejected p roduct as soon as
practicable at no additional char ge to the Plaintiff, and the Defendant would
reimburse the Plaintiff for any raw materials or other product used to
manufacture any such non -complying product.18
35.13. Notwithstanding anything to the contrary, the Plaintiff would be solely
responsible for all cos ts and expenses incurred in connection with and non -
complying product to the extent any raw material resulted in such product
13 Clause 3.2.1.10.
14 Clause 3.2.2.
15 Clause 3.2.3.
16 Clause 3.2.3.8.
17 Clause 3.2.3.9.
18 Clause 3.2.3.10.
21
being non -compliant, and would reimburse the Defendant for its costs and
expenses incurred in connection with the manufacture of s uch non -
complying product.19
35.14. All non -complying product and p roduct rejected pursuant to the IMA would
be removed and either re -processed or disposed of by the Defendant in
accordance with all applicable laws.20
36. As alluded to in clause 4.1 and the proviso to clause 4.1.2, as quoted below, the
initial manufacturing arrangement in terms of the IMA was part of a long -term plan
of the Plaintiff to set up its own production plant. This is common cause and further
borne out by:
36.1. The obligation of the Defendant to pro vide additional support services to
the Plaintiff, subject to a further written agreement, to:21
36.1.1. assist the Plaintiff in commissioning a new production plant in
South Africa and/or Africa;
36.1.2. advise the Plaintiff with regard to the optimal binders to use in
production;
36.1.3. train the Plaintiff's operational staff;
36.1.4. advise the Plaintiff in commercialising any pelletizing ventures.
36.2. The terms of clause 4.2 which read as follows:
19 Clause 3.2.3.12.
20 Clause 3.2.3.14.
21 Clause 3.3.
22
"At least 90 days prior to Idwala commissioning its production plant and/or
the expiry of t he Production Period, the Parties undertake to enter into
good faith negotiations regarding the continuation of the Project. In terms
of negotiations, the Parties shall negotiate, inter alia , the product to be
pelletized, price and the duration. "
36.3. In terms of clause 8, the IMA would be effective f rom the signature date
and would remain in effect until the expiry of the Production Period or, if
applicable, the expiry of the period agreed in t erms of clause 4.2, whichever
was the later date.
37. The "Producti on Period meant a peri od of twelve months, which would commence
on the earl ier of (i) the date when the Defendant had commissioned the necessary
plant to manufacture a t least 5 000 MT of p roduct per month or (ii) 1 February 2016,
as set out in further detail in clause 4.1.1."22
38. Clause 7 of the IMA granted exclusivity to the Plaintiff:
"Amserve agrees that it shall exclusively supply and not compete with Idwala in the
sale of any micro -fine, ultra -fine and/or micronized calcitic or dolomitic limestone
product or similar produced with the Raw Materials, for the duration of this
Agreement and subject to Idwala exercising the option in clause 9.4, for twenty -four
months after the termination or expiry of the Agreement. "
39. Clause 15.1 of the IMA contained a restraint / non-solicitation provision:
“Amserve agrees that during the term of this Agreement and for twelve months after
its termination, Aserve shall not, directly or indirectly, solicit or attempt to solicit
any micro -fine granule business (which uses the Raw Mat erials to make products of
similar application to the Pelletized Product) from any of Idwala’s customers,
prospective customers, or vendors, whether such parties are directly or indirectly
engaged with Idwala. ”
22 Clause 2.1.11 of the IMA
23
40. In terms of clause 9.3, the termination of th e IMA, for whatever reason, would not
affect the rights of any of the parties which may have accrued as at the date of
termination and would further not affect any rights which specifically or by their
nature survived the termination of the IMA.
41. In terms o f clause 9.4, if the IMA was terminated for any reason whatsoever, then
upon termination:
41.1. The Plaintiff would retake possession of all or the raw materials then in the
possession of the Defendant.
41.2. The Plaintiff would take possess ion of all paid for p roduct then in the
possession of the Defendant.
42. The Defendant would grant the Plaintiff an option to purchase all of the Defendant's
production facility and plant used in the manufacture of the p roduct (whether
commissioned at the signature date or later) at a p rice calculated in accordance with
clause 9.4.3.3 of the IMA.
43. The contentious clause of the IMA and on which the whole matter turns, is clause
4.1, which reads as follows:
"4.1 In respect [of] the arrangements set out in clause 3 and in order to advance
the Project, the Parties agree that until such time that Idwala has the
necessary production plant:
4.1.1 Amserve undertakes to take all necessary steps (which shall
include expanding its production plant) to produce at least
5000 MT of Pelletized Product p er month by 1 February 2016,
which shall be determined by the availability of Limestone and
gypsum and the market requirements; and
24
4.1.2. provided Amserve satisfies the undertaking in clause 4.1.1 by 1
February 2016, Idwala undertakes to purchase at leas t 60 000
MT of Pelletized Product per annum on a "take or pay" basis,
with a minimum of 5 000 MT per month, for the Production
Period which shall comprise of at least:
4.1.2.1 50 000 MT of Pelletized Product produced using
Limestone per annum; and
4.1.2.2 10 000 MT of Pelletized Product produced using
gypsum;
provided that such amounts shall be pro -rated in the year that
Idwala's production plant is commissioned, if such date occurs
after the expiry of the Production Period.
4.1.3 For the sake of cla rity, should Amserve fail to produce a
minimum of 5 000 MT of Pelletized Product per month from 1
February 2016, Idwala shall only be obliged to take the annual
volumes as produced to 31 January 2017. Any shortfall in the
volume shall not be carried over t o the next year. "
44. Taking into account the IMA as a whole and the relevant factual contextual
background in which it was concluded, the parties clearly intended that the
Defendant would be able to pelletize 60 000 MT raw material , divided between 50
000 MT of limestone product and 10 000 MT of gypsum for the Plaintiff, initially
for the production period as defined in clause 2.1.11, and then possibly for a further
agreed period, until the Plaintiff had either erected and c ommissioned its own
pelletization plant at some point in the future or had purchased the Defendant’s new
pelletization plant. For this purpose, the Defendant a greed to build a new
pelletization plant capable of producing at least 5000 MT per month.
45. As set out above, t he production period is defined as a per iod of twelve months
which would commence on the earlier of (i) the date when the Defendant had
25
commissioned the necessary plant to manufacture at least 5000 MT of Pelletized
Product per month or (ii) 1 February 2016 as set out in further detail in clause 4.1.1.
It is common cause that the new plant was not commissioned by 1 February 2016
and therefore the production period of twelve months commenced on 1 February
2016 to 31 January 2017. What is important in this definition of the producti on
period is that it was agreed that the “n ecessary plant” is one which could
manufacture at least 5000 MT of p roduct per month. The need was clearly for a new
plant which could manufacture at least this volume of product.
46. In clause 4.1.1, the Defendant un dertook to take all necessary steps (including
expanding its current production plant) to produce “a t least” 5000 MT of p roduct per
month by 1 February 2016. However, it is further stated that t his volume would be
determined by the availability of limeston e and gypsum and the market
requirements.
47. The Defendant contends that taking into account the contextual evidence that the
new plant could not be finally commissioned by 1 February 2016, because the
Defendant was still finalising the acquisition of the ne cessary finance from Standard
Bank and some major components with long lead manufacture time s had not yet
been ordered and the subsequent conduct of the parties , clause 4.1.1 must be
interpreted as meaning that the Defendant did not have to establish a pro duction
capacity of 5000 MT per month by 1 Februa ry 2016, but rather that it merely had to
have taken the necessary steps to do so by 1 February 2016. The Defendant contends
that as long as it had taken all the necessary steps (such as ordering the compone nts,
contracting with the necessary contractors etc .), it had complied with its undertaking
in clause 4.1.1 and therefore the Plaintiff had undertaken to order at least 60 000MT
26
of product per annum on a take or pay basis, at a rate of at least 5000MT per month
for the duration of the production period – being 1 February 2016 to 31 January
2017 .
48. Furthermore, the Defendant contends that no businessman in their right mi nd would
commit to the expense of a new plant and to sign finance agreements with a bank
where the company had to repay more than a million rand per month, without the
“guarantee” of the take or pay arrangement for 60 000MT per annum, otherwise,
says the Defendant, it would be at the mercy of the Plaintiff who would not have any
obligation to pl ace any orders at all. This says the Defendant is reinforced by the fact
that the IMA had an exclusivity clause therein in terms of which the Defendant
could not use the plant for any other customer other than the Plaintiff.
49. The Defendant contends therefor e that the only commercially sensible interpretation
of clause 4.1.1 and what it was undertaking therein , was not to having a production
capacity of 5000 MT per month by 1 February 2016 but rather merely having taken
the necessary s teps by 1 February 2016 to acquire such production capacity .
50. There are however a number of problems with the Defendant’s contentions in this
regard. The Defendant’s interpretation of clause 4.1.1 militates against the definition
of “production period” , which the parties agreed wo uld be from the date the plant
was commissioned or 1 February 2016, whichever was the earlier. This means the
parties clearly contemplated the production period commencing by no later than 1
February 2016. There would be no point in agreeing to such a prod uction period
even if the plant was unable to produce the required 5000MT per month by 1
February 2016.
27
51. Furthermore, it was also clear from the evidence that both the parties believed that
the sale s of the product would be high and the Plaintiff’s researc h had predicted they
would need approximately 5000MT per month during the production period. This
means that the Defendant’s Mr Wilmot, whilst possibly realising that the Defendant
may not be able to comply with clause 4.1.1 by having a production capacity of
5000MT by 1 February 2016, was not overly concerned since he was of the view
that the Defendant had in any event landed a massive customer with huge orders and
the Defendant would be making sufficient revenue to repay the bank loan,
irrespective of whe ther the Plaintiff had agreed to the take or pay commitment .
52. Furthermore, it is not clear tha t the Defendant would be unable to commission the
plant by 1 February 2016 and it also not clear that the Plaintiff was aware that the
plant could not be commissi oned by that date. This is important since the proper
interpretation to be accorded to a term is what the parties’ common intention
probably was and not only what one party may have been aware of , but rather what
both were definitely aware of. There is als o evidence which shows that even Mr
Wilmot may have harboured the hope that the plant could have the necessary
production capacity by 1 February 2016, since on 1 December he wrote to Standard
Bank and indicated that he expected the plant to be finally comm issioned by end of
January 2016. Counsel for the Defendant contended that this letter merely served to
put pressure on Standard Bank to finalise the loan (which by 1 December 2015) had
not yet been finalised. However, if that was so it would mean that Mr W ilmot was
making a material and intentional misrepresentation to Standard Bank. In my view
the more plausible explanation is that Mr Wilmot genuinely and bona fide believed
that it was indeed possible to have the plant commissioned by end of January 2016 ,
as stated in his letter. If that is so, it means that the Defendant when the IMA was
28
signed , was of the belief that the plant could possibly have a production capacity of
5000MT per month by 1 February 2016 and the Defendant took the chance of
signing the IMA and trying to comply with clause 4.1.1 by commissioning the new
plant by 1 February 2016 and even if it could not do so, it was worth the risk since it
anticipated large orders from the Plaintiff irrespective of the Plaintiff had committed
to the take or pay order in clause 4.1.2.
53. Lastly, the Defendant made much of the subsequent conduct of Mr Vorster,
contending that he wrote a letter to the Defendant on 30 November 20 16, in which
he indicated the Plaintiff was unable to fulfil its contractual obligati ons to the
Defendant. The Defendant contends that the only contractual obligations that Mr
Vorster could have been referring to was the take or pay obligation for 60 000 MT of
product per annum as envisaged in clause 4.1.2. The Defendant contends that this
subsequent conduct when taken into account as part of the contextual evidence
supports its interpretation of clause 4.1.1 and that therefore it had complied with
taking the necessary steps by 1 February 2016 to establish a plant with a capacity of
at leas t 5000 MT per month and therefore the Plaintiff had undertaken the take or
pay order envisaged in clause 4.1.2. However, a perusal of that letter does not reveal
whether Mr Vorster was referring specifically to an obligation in terms of an
enforceable take or pay order or to the Plaintiff’s obligations generally in terms of
the IMA. After all, irrespective of a take or pay order, the Plaintiff nevertheless had
an obligation to use the Defendant exclusively to pelletize its raw materials. What
the letter app ears to be telling the Defendant is that the Plaintiff was unable to
deliver raw material because of a problem at its quarries and not specifically that it
was unable to comply with an obligation to deliver sufficient raw material to enable
29
the Defendant t o produce at least 5000 MT of product per month. In as much as this
letter is not clear, it does not assist the Defendant’s interpretation of clause 4.1.1.
54. The Plaintiff in turn contends that taking into account the contextual evidence that
the Plaintiff needed to build up reserves of product stock in anticipation of the
planting season (which was from approximately November 2016 to February or
2017 ), the need to arrange logistics and transport of the raw material and the product
and storage thereof , that the production period would commence by latest 1
February 2016 and the remaining clauses of the IMA ( most importantly clauses 4.1.2
and 4.1.3), clause 4.1.1 must be interpreted as meaning that the Plaintiff would only
commit to the take or pay order in cla use 4.1.2, whereby it was committing to paying
for at least 60 000 MT of product (at a rate of at least 5000 MT per month)
irrespective of whether i t took such product or not, if the Defendant had in fact
established a production capacity of 5000 MT per mo nth by the beginning of the
production period in casu being 1 February 2016 . This was so that the Defendant
could in fact produce 5000MT per month , for which volume the logistics was
manageable and which would allow it to build up a reserve of product stoc k to
facilitate the planting season when demand was anticipated to be high and the stock
had to be readily available in the Plaintiff’s warehouses for shipping to farmers as
and when necessary .
55. Taking the aforesaid contextual evidence into account, the pro per interpretation of
clauses 4.1.1 is that the parties agreed that the Defendant would take all necessary
(note – the wording is “necessary” and not “reasonable”) steps to be able to pelletize
at least 5000 MT of product by 1 February 2016. Whilst this cl ause does specifically
not refer to the building of a plant in order to do so , if this clause is read in
30
conjunction with the definition of “Production Period” in clause 2.1.11, it is clear
that the parties intended that a plant be constructed and commissi oned capable of a
production capacity of at least 5000 MT per month by 1 February 2016. But the
requirement in clause 4.1.1 (read with the definition of “Production Period”)
envisages that the Defendant had to ensure that it had the capacity to pelletize at
least 5000 MT of product per month from 1 February 2016 , since that is when the
production period would commence .
56. In my view, there would be no point in agreeing to a production period commencing
on 1 February 2016, if the production plant did not have to be ready to produce at
least 5000MT by 1 February 2016 and an interpretation that the production plant
would not have to be commissioned and able to produce 5000MT per month by 1
February 2016 is not a commercially sensible interpretation in the circums tances of
the agreement and having regard to its purpose.
57. What is more difficult to determine is what was meant by the words “which shall be
determined by availability of limestone and gypsum and market requirements ”. Both
parties were ad idem that this ca n only mean that the requirement that the plant can
produce at least 5000MT per month means that the actual requirements every month
may be more and would be determined by limestone and gypsum available to do so
and/or if the market required more than 5000 MT per month. Ultimately , the
Defendant must by 1 February 2016 and thereafter have had in place the capacity to
produce at least 5000 MT per month , Clause 4.1.1 does not refer to actual
production by 1 February 2016 but rather to the capacity to do so. T he actual
production thereafter would be determined by the availability of limestone and
gypsum and the market requirements.
31
58. The addition of those words in clause 4.1.1 reinforces the interpretation that the
Defendant had to have commissioned a plant capa ble of producing at least 5000MT
per month by 1 February 2016 and not merely have taken the necessary steps to do .
If it merely had to have taken the necessary steps to do so, it would not have been
necessary to add the words “which shall be determined by availability of limestone
and gypsum and market requirements” since there would in any event not
necessarily be any production capacity by 1 February 2016 on the Defendant’s
interpretation and therefore no need to qualify the necessary production capacity by
the inclusion of those words in clause 4.1.1.
59. It is noteworthy that those words were included in clause 4.1. 1. and not in clause
4.1.2 which refers to the take or pay and where such words would have made more
sense once a production capacity had been e stablished. This also reinforces the
interpretation of clause 4.1.1. that the Defendant had undertaken to establish a
production capacity by 1 February 2016 and not merely the taking of the necessary
steps by 1 February 2016 to do so.
60. Clause 4.1.2 then pro vides that “provided” the Defendant had satisfied the
undertaking in clause 4.1.1 by 1 February 2016 (as expl ained above), the Plaintiff
undertook to purchase at least 60 000 MT of Pelletized Product per annum on a
“take or pay” basis, with a minimum of 50 00 MT per month, for the production
period, which would comprise of at least 50 000 MT of limestone pelletized product
and 10 000 MT of gypsum pelletized product. This clause is material to the
Defendant’s counterclaim because its entire counterclaim is pr edicated on the
Plaintiff having committed to an order of 60 000MT per annum on a take or pay
basis.
32
61. The Defendant contends that clause 4.1.2 means that the Plaintiff was oblige d to
take 5000 MT of product (which include limestone or gypsum or both making up
5000 MT per month) and pay for it, failing which the Plaintiff would in any event
have to pay for the equivalent of 5000 MT of product . This calls into question two
issues: firstly, whether that obligation arose at all if the Defendant failed to comply
with its undertaking in clause 4.1.1 and secondly, what was meant by “take or pay”
and how it was to be applied practically, particularly since it did not specify whether
the payment for 5000 MT of product would be for limestone or gypsum or in what
propo rtion of whether it would be pro -rata the amount of 50 000 limestone product
per annum and 10 000 gypsum product per annum, for the purpose of calculating the
monthly payment amount. This itself calls into question whether the “take” option
was for 50 0000 MT of limestone per annum divided by 12 months and 10 000 MT
of gypsum product per annum divided by 12 months i.e. whether the Plaintiff
obliged to take or pay for 4166 MT of limestone product per month and 833 M T of
gypsum product per month. Fortunately, on the proper interpretation of clause 4.1.1
and since the take or pay undertaking did not come into effect as explained below , it
is not necessary to determine the correct interpretation of the take or pay clause.
62. However, it is necessary to determine wh ether the take or pay came into effect and
bound the Plaintiff at all. In order to determine this, it is necessary to interpret the
words “provided Amserve satisfies the undertaking in clause 4.1.1 by 1 February
2016, Idwala undertakes to purchase …” . The Defendant was constrained to concede
(correctly so) that it would have had to comply with its undertaking in clause 4.1.1
(as properly interpreted) before the Plaintiff was obliged to commit to the
undertaking in clause 4.1.2 to place such order on a take or pay basis. This is clear
from the words “provided Amserve satisfies the undertaking in clause 4.1.1 by 1
33
February 2016, Idwala undertakes to purchase …” (my emphasis) and there can be
no other commercially sensible meaning to this word “provided” in thi s clause .
63. As set out above, t he Plaintiff contends that clause 4.1.1 imposes an absolute
obligation upon the Defendant to have its production plant ready to produce a t least
5 000 MT of p roduct per month by 1 February 2016, failing which the Plaintiff is
permanently relieved of the obligation in terms of clause 4.1.2 to purchase at least 60
000 MT of product per annum on a take or pay basis, with a minimum of 5 000 MT
per month. In other words, if the deadline of 1 February 2016 is missed, it becomes
discr etionary for the Plaintiff to place orders fo r the production of p roduct on the
Defendant and the Plaintiff i s not bound by the take or pay basis.
64. But for the conditional undertaking in clause 4.1.2, the IMA was merely an
agreement in terms of which the De fendant would pelletize the tonnages of raw
material supplied to it by the Plaintiff from time to time, without any obligation on
the Plaintiff to order any minimum tonnage per month or per annum. The only
obligation on the Plaintiff to order a specific minimum tonnage of product per
annum with an agreed minimum , is found in clause 4.1.2 – but that undertaking
which gives rise to the obligation to do so is itself subject to the proviso that the
Defendant had complied with its own undertaking in clause 4.1.1 .
65. The Defendant contends, correctly, that clause 4.1.1 does not constitute a guarantee
or warranty that the plant would have 5000 MT per month capacity by 1 February
2016. However, what this contention ignores is that the failure to do so had
consequences in respect of whether the Plaintiff was obliged to comply with its own
undertaking in clause 4.1.2.
34
66. The Defendant is also correct in its contention that it is clearly envisaged in the
definition of "Production Period" that the necessary plant to manufact ure at least 5
000 MT of Pelletized Product per month may only be commissioned at a date later
than 1 February 2016. But similarly, whilst it is so that the pelletization plant could
indeed be commissioned on a date later that 1 February 2016, this too had
consequences as set out above. The main consequence would be that the Plaintiff
was relieved of the obligation to take or pay for 60 000 MT of product per annum,
with a minimum of 5000 MT per month.
67. The Defendant further contention in this regard is that clause 4.1.3 clearly caters for
the situation where the Defendant fails to produce a minim um of 5 000 MT of
product per month from 1 February 2016. In such a case, the Plaintiff is only obliged
to take so much of the annual volumes (60 000 MT) as produced up to 31 January
2017 and any shortfall in the annual volume is not be carried over to the following
year. The Defendant contends further that this implies by necessity that any shortfall
in the monthly volume produced may be carried over to the following months
subject to the 31 January 2017 cut -off i.e. that it can make up the low production .
68. On a proper interpretation of clause 4.1.3, it was not intended to apply in the absence
of an obligation by the Plaintiff in terms of clause 4.1.2. In other words, should the
Defendant comply with its obligation in clause 4.1.1 , and clause 4.1.2 did not
become operative then clause clause 4.1.3 also did not become operative. Clause
4.1.3 merely made it clear that if the Plaintiff had committed to the take or pay in
clause 4.1.2, the Plaintiff was however not entitled to take or pay what the
Defendant has not produced and was only obliged to take (and pay) the volumes
actually produced by the Defendant every month up to 31 January 2017.
35
69. Clause 4.1.3 then also made it clear that any shortfall in th e volume (i.e. 60 000 MT)
could not be carried over into the next year (the word “year” in the last sentence of
clause 4.1.3 can only sensibly be interpreted as referring to th e next “production
period” i.e. if a further agre ement is concluded for another production period).
70. But ultimately, clause 4.1.3 was only applicable if the Plaintiff had the obligation to
take or pay 60 000 MT per annum, with a minimum of 5000 MT per mon th and this
in turn only became enforceable if the Defendant has a production capacity of at
least 5000 MT per month by 1 February 2016. It is common cause that it did not,
since it is common cause that the new production plant was only commissioned in
June 2016 – some five months after 1 February 2016. This means that it is not
necessary to determine whether on a proper interpretation of clause 4.1.3, the
Defendant had a right to catch -up production by the end of the production period on
31 January 2017, in the event that it could not produce 5000MT per mo nth during
the production period since this alleged right would only have been relevant if the
Plaintiff had undertaken the take or pay order in terms of clause 4.1.2 – which it did
not.
71. Ultimately the Defendant’s interpretation of clause 4.1.1 and its rel iance on
subsequent conduct of the parties, is “unmoored in the text and its structure” and
particularly if one has regard to the text in the context of clauses 4.1.2 and 4.1.3.
72. Having found that the Plaintiff did not have an obligation to purchase at leas t 60 000
MT per annum, with a minimum of 5000 MT per month, on a take or pay basis,
there appears no reason to determine what e xactly is meant by the concept take or
pay. Neverthless , it seems that “take or pay” in the context of the IMA simply means
that if the Defendant was making its production capacity exclusively available to the
36
Plaintiff for 60 000 MT per annum, with a minimum of 5000 MT per month, the
Plaintiff was then obliged to take supply sufficient material to produce at least 5000
MT of granul ated product per month and the Plaintiff had to then take delivery of
(and pay) for such product and furthermore would be liable to make payment of the
equivalent of 5000 MT of product, even if it had not delivered sufficient raw
material to the Defendant. In other words, the Plaintiff would pay the Defendant the
equivalent of 5000 MT of product per month essentially for reserving the
Defendant’s production capacity for that month. Th e Plaintiff then either delivered
sufficient raw material and took it or i t did not deliver sufficient raw material and
paid the equivalent for 5000 MT as if the Defendant had in fact produced it.
73. Of course, the clause is silent on what h appens if the Plaintiff delivered sufficient
raw material, but the Defendant did not produc e 5000 MT of product. In such a case
the only commercially sensible interpretation would be that the Plaintiff was not
obliged to make payment for product that the Defendant did not produce despite
being in a position to do so and the take or pay would not apply. However, s ince I
have held that clause 4.1.2 and 4.1.3 did not become applicable to the parties, I need
not make a definitive finding in this regard.
74. I therefore find that on a proper interpretation of clause 4.1 .1, the Plaintiff was not
obliged to purchase at least 60 000MT per annum of granul ated product, on a take or
pay basis, with a minimum of 5000MT per month. That being so, the fundamental
premise for the Defendant’s first counterclaim predicated on the enforceability of the
take or pay , must fail.
75. Based on the aforesaid interpretation of the IMA, the Plaintiff cannot be said to have
breached the IMA since it was not obliged to deliver any minimum amount of raw
37
material to the Defendant . In terms of the IMA and since clauses 4.1.2 and 4.1.3
were not applicable or enforceable, the Plaintiff was only obliged to make payment
for the raw material in fact pelletized and made available to the Plaintiff by the
Defendant. There is no suggestion that the Plaintiff failed to make payment to the
Defendan t for product pelletized for it by the Defendant – whether in terms of the
initial agreement or the IMA.
76. Based on the aforesaid finding, it is not then necessary to deal with the remaining
issues raised in respect of the Defendant’s counterclaims, such as inter alia whether
the Plaintiff had failed to supply the raw material necessary to produce 5000 MT of
granulated product per month, the reasons for the stoppages in the production and
the quantification of the Defendant’s counterclaim, including the issue s of its
variable costs, whether the plant had included a large granulation pan from the outset
and many other ancillary issues and I decline to do so.
77. In the circumstances, the Defendant’s counterclaims are dismissed.
78. This brings me to the Plaintiff’s cla ims for (1) payment of the sum of R1 604 150,
alternatively R1 334 254 being repayment of advance payments made by the
Plaintiff to the Defendant for the pelletizing of limestone and gyp sum but in respect
of which advance payments, product was not delivere d by the Defendant; (2)
payment of the sum of R945 181, being the value of raw material supplied by the
Plaintiff which was used by the Defendant, but which resulted in 1 279 MT of
oversized pellets which were incapable of being reworked or resold and rend ered
wasted and (3) payment of the sum of R83 488 being the amount outstanding in
respect of bags supplied by the Plaintiff to the Defendant for which the Defendant
undertook to pay, but failed to do so.
38
79. In respect of the first claim, whether the Plaintiff is entitled to repayment of R1 604
150, alternatively R1 334 254 ( the Plaintiff's calculations being set out in annexure
"POC2" and "POC2.1" to its Particulars of Claim) , the alternative amounts claimed
are dependent on whether the prior agreement was rep laced and/or subsumed by the
IMA as contended by the Plaintiff, or whether it remained a separate agreement to
the IMA as contended by the Defendant and there fore whether certain of the
advance payments were in fulfilment of the IMA (which took over the pr ior
agreement) or whether they were i n fulfilment of only the prior agreement separately
from the IMA – in which event the Plaintiff would only be entitled to repayment of
the lesser amount of R1 334 254 .
80. The Plaintiff of course relies on clause 19.5 of t he IMA which states as follows:
“[T]his agreement constitutes the entire Agreement among the Parties with regards
to the subject matter in this Agreement and any previous Agreements,
understandings and negotiations on that subject matter cease to have any effect. ”
81. Whether the initial agreement ceased to have any effect and was effectively replaced
by the IMA is dependent on whether the “subject matter” of the respective
agreements is the same. T he subject matter of the prior agreement w as the
pelletization by the Defendant of the Plaintiff’s limestone raw material into prills.
The subject matter of the I MA was similarly the pelletization by the Defendant of
the Plaintiff’s limestone and gypsum raw material into prills. The subject matter is
therefore exactl y the same (with the addition of gypsum) , albeit that the volumes and
sizes of the prills may have differed. Therefore, the prior agreement ceased to have
effect on the conclusion of the IMA on 1 December 2015 and that is the correct
interpretation of clau se 19 of the IMA. Any product produced by the Defendant after
39
1 December 2015 on behalf of the IMA could only have been in term s of the IMA
and not the prior agreement. The Plaintiff is not therefore entitled to repayment of
any advance payments it made pr ior to 1 December 2015 since its claim was
exclusively based on the IMA and not any prior agreements.
82. What then does one make of the fact that the Plaintiff kept open the purchase order
for 24000MT placed pursuant to the prior agreement? It merely means th at the
remainder of the purchase order was regulated by the terms of the IMA and became
an order in terms of the IMA for the remainder of that purchase order. The evidence
was clear that the purchase order number was maintained only because it was easier
in the system to maintain that order number rather than create a whole new order for
the balance of the tonnage not delivered as at 1 December 2016. It was therefore
merely an internal accounting issue.
83. Lastly in regard to the Plaintiff’s first claim it is necessary to deal with the
Defendant’s contention that there is no provision in the IMA for repayment of
advance payments made in respect of which no product was produced and made
available to the Plaintiff. The Defendant contends that the Plaintiff is not entitled per
se to a repayment of advance payments for which it did not receive product. The
Defendant contends that if the Plaintiff's cause of action is contractual, there is no
express term in the IMA providing for such a repayment and that to the exte nt that
the Plaintiff relies on an implied or tacit term, the Plaintiff has failed to plead such a
term and has further failed to lead evidence to satisfy the so -called "bystander test"
for importing such a term ex consensu .
84. It is trite that on the cancell ation of a contract due to breach or anticipatory breach
(repudiation), a party has a right to contractual restitution of that which it has
40
performed by not received the countervailing performance from the breaching
party23. At first blush it would seem tha t the advance payments by the Plaintiff can
be recovered as a contractual restitution claim. However, Mr Strydom for the
Defendant contended that those cases were distinguishable since in those cases, the
right to contractual restitution arose on the cance llation of a contract due to breach,
whereas in this matter, the Plaintiff did not rely on a cancellation of the contract due
to a breach by the Defendant but rather on the termination of the contract due to
effluxion of time. Insofar as I found that the D efendant’s purported cancellation of
the IMA due to a breach by the Plaintiff could not be upheld and insofar as the IMA
had terminated by effluxion of time on 31 January 2017 , before the Plaintiff
exercised its election to accept the Defendant’s repudiati on (i.e. its purported
cancellation of the IMA) in February 2017 , it would mean that the IMA terminated
by effluxion of time. I n other words, the IMA terminated by the mutually agreed
date of 31 January 2017.
85. The question is then whether a party who has ma de advance payments in expectation
of countervailing performance from the other party, can claim restitution of its
advance payments on the termination of the agreement by effluxion of time without
relying on a tacit term to that effect . In Ace Motors v Ba rnard 1958 (2) SA 534 (T)
at 537F -G, Dowling J held as follows in this regard:
“The authorities quoted by Mr. Pienaar and certain others, seem to me clearly to
establish that on an agreed rescission of a partly executed contract of sale the seller
must ref und such of the purchase price as the purchaser has paid, if it is not
otherwise agreed.
In Combrinck v Maritz, 1952 (3) SA 98 (T), the head -note reads: -
23 See Baker v Probert 1985 (3) SA 429 (A) at 438I -439C and Tweedie and Another v Park Travel Agency (Pty)
Ltd t/a Park Tours 1998 (4) SA 802 (W) at 807B -D
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'When a contract of purchase and sale is mutually cancelled and one party has
performed his part o f the original contract then, if he is the purchaser, he is entitled
to recover the price paid.' ”
86. This finding was upheld by the Appellate Division in Van den Berg v Tenner 1975
(2) SA 268 (A) at 274H, where it was held as follows (per Botha JA):
“Een van daardie gevolge was die terugbetaling aan eiser van die bedrag van R10
000 wat hy as deel van die koopsom ingevolge die gekanselleerde ooreenkoms
betaal het, want dit is duidelik dat waar partye na sluiting van 'n ooreenkoms weer
ooreenkom om uit die eers te ooreenkoms terug te tree, en een of albei van die partye
reeds gedeeltelik onder die eerste ooreenkoms gepresteer het, daar uit die tweede
ooreenkoms, tensy anders ooreengekom, 'n verpligting ontstaan tot teruggawe van
dit wat reeds gepresteer is. (Ace Motors v Barnard, 1958 (2) SA 534 (T)). ”
87. And at 277F:
“Myns insiens was eiser geregtig om die terugbetaling aan hom van die bedrag van
R10 000 te vorder bloot op grond van die kansellasie van die ooreenkoms van 12
Junie 1970 en die onmoontlikwording, as g evolg van die kansellasie van die twee
ooreenkomste van 19 November 1970, van die wyse en tyd waarop terugbetaling van
daardie bedrag in die ooreenkoms van 2 Desember 1970 beding is. Dit was vir eiser
dus nie nodig om op 'n stilswyende beding te steun nie. ” (my emphasis)
88. I therefore find that the Plaintiff has adequately pleaded a case for the restitution of
its advance payments made under a contract which expired by effluxion of time.
89. The Defendant however correctly contends that since the Plaintiff seeks to enforce
its rights under the IMA an d not under the prior 24 000 MT order in terms of the
prior agreement, it is clear that it cannot take into account advance payments made
under the previous agreement and therefore the claim for the sum of R1 604 105 as
42
set out in annexure “POC2” to the Plaintiff’s particulars of claim (which includes
payments prior to the conclusion of the IMA on 1 December 2015), cannot be
granted. On this basis, the Plaintiff is only entitled to recover pre -payments made
from 1 Dece mber 2015, which is the period governed by the IMA, the amount of
which is R1 334 254, as set out in annexure "POC2.1" to the Plaintiff’s particulars of
claim.
90. In its second claim, the Plaintiff claims the sum of R945 181 being the value of
1 279 tons of pellets which were allegedly incapable of being reworked or resold.
This is calculated at a cost of R739 per ton. The evidence of Mr Behrens and Mr
Ziemerink was led in this regard.
91. As explained by Mr Klue in his evidence, there is a difference between oversized
pellets (generated at the start of a production session) and waste, being the residue in
the granulation pan at the end of a production session.
92. There was no contractual obligation placed upon the Defendant in the IMA to
rework oversized materi al. In any event, the oversized pellets had to be blended
with fresh raw material in a ratio of 3% -6% of the oversized pellets and 94% -97% of
fresh material. Furthermore, in terms of clause 3.2.1.4 of the IMA "production
shrinkage" of 3% in the case of l imestone was allowed and the Defendant was not
responsible for this production shrinkage.
93. In order to discharge its onus in respect of proving its second claim, the Plaintiff had
to prove:
93.1. That some granules produced under the IMA were oversized, in other
words, more than the permissible 2mm – 6mm in size. However, it was
43
common cause that there was indeed oversized product as recorded in the
monthly stock -sheets;
93.2. That some of the oversized pellets were indeed not re -workable. This would
have required exper t expert evidence, yet the Plaintiff relied solely on Mr
Ziemerink's inspection and subjective opinion and he was not qualified as
an expert in this regard ;
93.3. The exact volume of oversized pellets which was not re -workable, which
would also require expert ev idence. Again, t he Plaintiff merely led the
evidence of Mr Ziemerink who conducted a physical inspection and
counted the number of bags which in his subjective opinion were not re -
workable;
93.4. That the volume of oversized product which was not re -workable fa lls
outside the production shrinkage margin of 3% of the total raw materials
supplied. However, 3% of the total volume of 20 899 tons of raw material
supplied by the Plaintiff in the period of the IMA amounts to 627 tons. This
must be deducted from the Pla intiff's claim of 1 279 tons;
93.5. the oversized product did not result from non -complying raw material.
There was no such ev idence and particularly no expert evidence.
93.6. the Plaintiff followed the contractually prescribed rejection procedure in
clauses 3.2.3.8 – 3.2.3.10 of the IMA in respect of non -conforming product.
There was no evidence that such procedures were indeed followed by the
Plaintiff;
44
93.7. the Plaintiff had to prove the cost of the raw material that became wasted.
Mr Behrens testified that the cost pri ce was R739 per ton and that the proof
was in the Plaintiff's system. No documents were discovered or proved in
evidence to substantiate this cost price. Bearing in mind that most of the
raw material came from the Plaintiff's own quarry at Port Shepstone and
had to be transported to Gauteng, the cost is not a readily apparent figure.
94. The Plaintiff led insufficient evidence to prove its claim in this regard and I was not
satisfied that it was proved that the material was in fact all wasted or what
proportio n was wasted and the value of the remaining still usable material.
95. In the circumstances, I find that the Plaintiff did not prove its second claim and this
claim must be absolved from the instance.
96. In its third claim, t he Plaintiff claims the amount of R83 488 as the amount still
owing in terms of an agreement between the parties that the Defendant would pay
for missing bags. Payment was to take place in three instalments of which only the
first instalment was effected. The Defendant has accepted liability for the of R83
488 but relied on the set -off as provided for in Rule 22(4) of the Uniform Rules of
Court on the basis that the Plaintiff’s third claim would be extinguished by the
Defendant's counterclaim. However, since the Defendant’s counterclaims are
dismissed, there is no viable defence raised to the Plaintiff’s third claim and in the
circumstances the Plaintiff is entitled to payment of R83 488.
97. In respect of costs, there is no doubt that a large proportion of the trial was devoted
to evidence in rel ation to the Defendant’s counterclaim. This counterclaim has been
unsuccessful and there is no reason that the Defendant should not pay the Plaintiff’s
costs of successfully defending the counterclaim. The Plaintiff has also been
45
successful in its first an d third claim but has had absolution granted in respect of its
second claim. On a conspectus of the whole matter, the Plaintiff has been
substantially successful and should be awarded the cost of the its action and of its
defending of the counterclaim.
98. In the circumstances , the following order is made:
98.1. The Defendant is to make payment to the Plaintiff of the amount of R1 334
254.00;
98.2. The Defendant is to make payment to the Plaintiff of interest a tempore
morae on the amount of R1 334 254, at the legally pr escribed interest rate
of 10,25% from date of demand, being 14 February 2017, to date of final
payment in full;
98.3. The Defendant is to make payment to the Plaintiff of the amount of R83
488.00; The Defendant is to make payment to the Plaintiff of interest a
tempore morae on the amount of R83 488.00, at the legally prescribed
interest rate of 10,25% from date of service of summons to date of final
payment in full;
98.4. The Defendant’ s counterclaims are dismissed;
98.5. The Defendant is to make payment of the Plaintiff’ s costs of action and the
costs of defending the Defendant’s counterclaims as taxed or agreed on
scale C of Rule 67 A read with rule 69 of the High Court Rules.