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[1996] ZASCA 140
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Namibian Minerals Corporation Ltd. v Benguella Concessions Ltd. (430/94) [1996] ZASCA 140; 1997 (2) SA 548 (SCA); [1997] 1 All SA 191 (A); (27 November 1996)
CASE NO: 430/94
IN THE SUPREME COURT OF
SOUTH AFRICA
(APPELLATE DIVISION)
in the matter between:
NAMIBIAN MINERALS CORPORATION LIMITED APPELLANT
and
BENGUELA CONCESSIONS LIMITED
RESPONDENT
CORAM:
E M GROSSKOPF, F H GROSSKOPF, HARMS, SCHUTZ
and PLEWMAN , JJA
HEARD:
4 NOVEMBER 1996
DELIVERED: 27 NOVEMBER 1996
JUDGMENT
HARMS JA/
2
HARMS JA:
Businessmen are often content to conduct their
affairs with only vague or incomplete agreements in hand.
They then tend to rely on hope, good spirits, bona fides and commercial expediency to make such agreements work. But when they are
at loggerheads, it appears to be futile to consider
whether they would have been able to do so. Once a court is
called upon to determine whether an agreement is fatally
vague or not, it must have regard to a number of factual and
policy considerations. These include the parties's initial
desire to have entered into a binding legal relationship;
that many contracts (such as sale, lease or partnership) are governed by legally implied terms and do not require much by
way of agreement to be binding (cf Pezzutto v Dreyer and
Others
[1992] ZASCA 46
;
1992 (3) SA 379
(A)); that many agreements contain
tacit terms (such as those relating to reasonableness); that
language is inherently flexible and should be approached
sensibly and fairly; that contracts are not concluded on the
supposition that there will be litigation, and that the court
3
should strive to uphold - and not destroy - bargains. (See,
generally, Murray & Roberts Construction (Pty) Ltd v F
inat Properties (Pty) Ltd
1991 (1) SA 508
(A) 514.)
It is useful in this regard to quote, at some
length, two extracts from judgments in Hillas & Co Ltd v
Arcos Ltd
[1932] All E R 494
(HL) on this subject:
"Commercial documents prepared by business men in
connection with dealings in a trade with the
workings of which the framers are familiar often
by reason of their inartificial forms confront the
lawyer with delicate problems. The governing
principles of construction recognised by the law
are applicable to every document, and yet none
would gainsay that the effect of their application
is to some extent governed by the nature of the
document. On the one hand the conveyance of real
estate presenting an artificial form grown up
through the centuries and embodying terms of art
whose meanings and effect have long since been
determined by the courts, and, on the other hand,
the formless document, the product of the minds of
men seeking to record a complex trade bargain
intended to be carried out, both fall to be
construed by the same legal principles, and the
problem for a court of construction must always be
so to balance matters that, without violation of
essential principle, the dealings of men may as
far as possible be treated as effective, and that
the law may not incur the reproach of being the
destroyer of bargains. The principles are not in
4
dispute. It is in the application of them to the
facts of a particular case that the difficulty arises; and the difficulty is of such a kind as
often to afford room for much legitimate
difference of opinion and to present a problem the
solution of which is not as a rule to be found by examining authorities." (Per Lord Tomlin at p 499
G-I.)
"The document of May 21, 1930, cannot be regarded
as other than inartistic, and may appear repellant
to the trained sense of an equity draftsman. But
it is clear that the parties both intended to make
a contract and thought they had done so. Business men often record the most important agreements in
crude and summary fashion; modes of expression
sufficient and clear to them in the course of
their business may appear to those unfamiliar with
the business far from complete or precise. It is,
accordingly, the duty of the court to construe
such documents fairly and broadly, without being
too astute or subtle in finding defects; but, on
the contrary, the court should seek to apply the
old maxim of English law, verba ita sunt
intelligenda ut res magis valeat guam
pereat. That maxim, however, does not mean that
the court is to make a contract for the parties,
or to go outside the words they have used, except
in so far as there are appropriate implications of
law, as, for instance, the implication of what is
just and reasonable to be ascertained by the court
as matter of machinery where the contractual
intention is clear but the contract is silent on
some detail. Thus in contracts for future
performance over a period, the parties may not be
5
able nor may they desire to specify many matters
of detail, but leave them to be adjusted in the working out of the contract. Save for the legal
implication I have mentioned, such contracts might
well be incomplete or uncertain; with that
implication in reserve they are neither incomplete
nor uncertain. As obvious illustrations I may
refer to such matters as prices or times of
delivery in contracts for the sale of goods, or
times for loading or discharging in a contract of
sea carriage. Furthermore, even if the
construction of the words used may be difficult,
that is not a reason for holding them too
ambiguous or uncertain to be enforced if the fair
meaning of the parties can be extracted." (Per
Lord Wright at p 503H-504C.)
(Cf also Genac Properties Jhb (Pty) Ltd v NBC Administrators CC (previously NBC Administrators ("Pty)Ltd
[1991] ZASCA 188
; ;
1992 (1) SA 566
(A) 579G).
The 'essential principles' a court may not violate
include especially those that govern the law of contract,
more particularly, the rules of interpretation and the parol
evidence rule. In passing it may be observed that the
adjective 'essential' in this context appears to be
unnecessary since there are no inessential principles that
6
a court is entitled to violate. In addition, the question of vagueness or otherwise of an agreement is an objective
consideration and it is of no avail to have regard to the
subjective intentions and desires of the respective parties;
nor can one consider what a reasonable agreement would (or
should) have entailed. On the other hand, I cannot agree
with Conradie J's (at least implicit) approach in the court
below to the effect that the good or bad faith of a
negotiating party or the oppressiveness of the bargain to a
party are factors that can be taken into account in judging
vagueness. I do, however, agree with EM Grosskopf JA that an ambiguous contract is not for that reason necessarily
vague. Vagueness or uncertainty do not as a matter of course
flow from ambiguity although it may give rise thereto.
Though the first issue between the parties is the
validity of their agreement, the focus is on the 'farm-in'
clause and, more particularly, certain phrases therein. That
focus should not, however, obscure the true investigation
7
which is concerned with the agreement as a whole.
Namco (the acronym for the appellant) relied as its
cause of action on the July agreement and argued that the
'farm-in' clause (which is contained in the March heads) was
incorporated into the July agreement by reference. The
correctness of that submission depends upon the construction
placed on clause 4 of the July agreement that reads:
"The laws of the
Republic
of
South Africa
shall apply. Other rights and obligations reflected in the March Heads shall remain. Matters dealt with in this agreement shall be
governed by this agreement."
Initially there were no binding 'rights and obligations' in
the March heads because those heads were subject to a number
of suspensive conditions, as yet unfulfilled. Since these had subsequently been fulfilled or were waived by the agreement in July,
there can be little doubt that the remaining 'rights and obligations' became unconditional.
These included, at least, the 'farm-in' clause. The indirect
8
reference to that clause in the July agreement does not carry
with it the implication that it had been incorporated into that agreement. The use of the word 'remain' in the second
sentence of the quoted clause is prima facie incompatible with an intention to incorporate the 'other rights and obligations' therein,
and is consistent rather with the
intention that the remnants of the March heads should survive
independently. This impression turns into a conviction if
regard is had to the last sentence of the clause - it can
perform no other function. It may be questioned then what
the purpose behind all this was because, at first blush,
there does not seem to be much sense in having two
interrelated contracts if one could have covered all that was
agreed in one. The answer may not be all that difficult to
find. It is known that Miller and Holberton had realized
before the July agreement was concluded that the 'farm-in'
clause, particularly insofar as the concept of 'similar
attraction' is concerned, conceivably was vague and could
9
lead to litigation. They also knew that the parties had not
found it possible to agree on what a 'similar attraction' in
South Africa would be and that they had planted, at the very
least, a doubt in the mind of Benco (the acronym for the respondent) whether or not the March heads had created
binding 'rights and obligations'. With that knowledge, and
even before the negotiations had been concluded, Holberton
requested his attorney to draft the July agreement. Of
utmost importance to him was the retention of the 'farm-in'
right. It seems reasonable to assume that, in those
circumstances, the parties may well have decided not to
complicate the July negotiations and to leave the 'farm-in'
clause where it was, namely in the March heads. I should
make it clear that I do not have to find as a fact that such
a decision had been made. At this juncture the question is whether the ordinary meaning of clause 4 can be ignored or
whether the clause is susceptible to adjustment on the basis that it could not have been the parties's true intention not
10
to incorporate the 'farm-in' clause into the July agreement.
All I hold is that, reasonably speaking, it may have been
their intention to leave that matter to be governed by the
March heads. We are then bound to give effect to the words
chosen by the drafting party
—
the more so where this was
done with legal advice. Cf SoutA African Warehousing Services (Pty; Ltd and Others v South British
Insurance Co Ltd
1971 (3) SA 10
(A) at 18C-H.
Considering the 'farm-in' clause, it is convenient
to quote it in full:
"In the event that the Parties are unable to
obtain CDM's consent to a further extension beyond
the three (3) year period, or in the event SILVEN
[i e Namco] is not satisfied by the venture
returns, BENCO shall offer the right of a farm-in
to SILVEN in one or more Concession Areas it holds
in the Republic of South Africa of similar
attraction on terms no less favourable than those
stated herein."
In consequence of the rule 33(4) order, we are not called
upon to interpret the contract for purposes of this stage of
11
the litigation, but without some interpretation it is
impossible to determine whether the allegation of vagueness
is well-founded. Interpretation is additionally necessary in order to decide the second issue between the parties,
namely whether Namco would have been entitled (had the
contract not been cancelled) to 'trigger' the farm-in clause
during October 1992.
The clause created a right in the nature of an
option for Namco, and an obligation ficiendi on the part of
Benco. Benco's obligation was to make an offer to Namco if
one of two eventualities should arise. The first was if the
parties were to be unable to obtain CDM's consent to a
'further extension beyond the three (3) year period'. That
is a reference to the work contract between Benco's
subsidiary and COM. The March heads were conditional upon
an extension of that contract for an initial three year
period as from April 1992. In the July agreement the parties
recorded that this extension had not been obtained, that
12
Benco anticipated future extensions and that the joint
venture would nevertheless proceed. In short and as far as
the first eventuality is concerned, it could have arisen only
in April 1995.
The second, and alternative, eventuality would
arise if Namco were 'not satisfied by the venture returns'.
A number of questions arise in this regard. On the meaning
and effect of the terms 'not satisfied' and 'venture
returns', I agree with the judgment of EM Grosskopf JA.
Remaining questions relate to the identification of the
'venture' and the time when the dissatisfaction, for purposes
of the agreement, may have arisen, thereby triggering Benco's
obligation to make an offer toNamco. The 'venture' referred
to in the 'farm-in' clause in the context of the March heads appears to me to be a reference to, what the parties called,
'Stage 1'. The heads anticipated financial backing by Namco
of Canadian $ 1,5m in order to establish an economic mining
activity for the initial three-year period of the CDM
13
contract, i e until April 1995. After payment of operating
expenses, Namco was entitled to recover this investment 'from
the venture'. Following this recovery, Benco would have been
entitled to a 50% share of the net after tax profits 'of the
venture as represented by the investment undertaken during
the said Stage 1'. A geological and technical report was
required for the development of that stage only. Other
matters were left for later negotiation and agreement. The
July agreement did not even qualify the 'rights and
obligations' relating to Stage 1 at all, and it was in any
event Namco's case, according to the further particulars for
trial, that the South African venture would also have had a
stage 1. (That is in a sense a makeweight argument because,
as far as interpretation is concerned, we are not bound by
the allegations of the parties in regard thereto.) All of
this leads to the conclusion that the venture referred to in
the 'farm-in' clause was a similar three-year venture. And
if that is so, as in the case of the first eventuality, the
14
obligation of Benco could only have arisen at the end of the
first three year period, that is during April 1995.
This conclusion finds confirmation in the
following: The phrase 'not satisfied by the venture returns'
does not, in the context of the March heads or the July
agreement, convey to me the possibility of a lack of
satisfaction with anticipated venture returns, more so if
they were due to temporary market conditions. Ventures of
this kind are by their very nature long-term projects and
because of that it seems to me also improbable that the
parties could have intended anything different. Furthermore,
the phrase does not cover a dissatisfaction with the terms,
application and execution of the CDM work contract. That
contract, extended or not, was the cornerstone of the initial
and ultimate agreement between Namco and Benco. The
acceptability of the venture returns in its terms formed
the basis of the agreement. It means that the ordinary
operation of that agreement could not have been a legitimate
15
ground upon which Namco could have based a dissatisfaction
with the venture returns.
This interpretation (i e a three-year venture) does
give rise to problems, but in my judgment any other approach
inevitably leads to greater improbabilities and obscurities.
To illustrate: as mentioned, the exercise of the 'farm-in'
option would not have brought an end to the Namibian joint
venture; in other words, upon the dissatisfaction of Namco with the venture returns and its exercise of the option, it
would have become a partner in two joint ventures. It was
obliged to carry on with the unsatisfactory venture.
Furthermore, according to Namco's interpretation, the 'farm-
in' option was to operate in perpetuity, entitling Namco to
a South African joint venture if, say, after mining for a
century in Namibia it became dissatisfied with the returns,
it could farm into South Africa. In the meantime, Benco had
to keep its South African concessions (at least those of
similar attraction) sterile because otherwise it would not
16
be able to perform, come the day of dissatisfaction. We know from the threats expressed by Miller and Holberton that that
is how they purported to interpret the clause even before the
July agreement had been concluded. The consequences of such
an interpretation are so extreme that one has to conclude,
as a matter of interpretation, that it is highly unlikely
that they could have been intended. All this means that I
am of the view that the phrase 'not satisfied by the venture
returns', if interpreted to refer to a dissatisfaction with
the three-year venture is not necessarily vague and I am
prepared to assume in favour of Namco that the agreement is
not void for uncertainty on this ground.
1 then turn to the phrase 'the right of farm-in . . .
on terms no less favourable than those stated herein.'
Inherent in my earlier finding is that the final word of the
phrase, 'herein', refers to what is contained in the March
heads. So read, it is clear to me that what was intended by
the words 'right of farm-in' was a similar South African
17
joint venture, and that disposes of the contention that the
term 'farm-in' is in any way vague. Accepting that the term
'no less favourable' means, in context, no less favourable
to Namco (as was submitted on its behalf) what then should
the terms have been that had to be offered? This exercise is necessary in order to determine whether the 'farm-in'
clause could have given rise to a valid option.
The term of the anticipated South African venture
is rather difficult to establish because the guiding hand of
CDM and its work contract were not factors that applied to
this country. The basic term of the March heads was a period
of three years and it seems to me that that had to be the
period that had to be offered in the option. The fact that
CDM could have extended the work contract for an indefinite
period could not, and therefore did not, apply to the option.
The finacial arrangements do not pose any problems because
what applied to
Namibia
could also have been made applicable
to
South Africa
without any adjustment. Conversely, the
18
suspensive conditions concerning CDM could clearly not
have been apposite to the South African situation, but the
others were, and had to be part of the option. Suspensive
condition no 4 requires special consideration. It reads:
"The entering into by the Parties of an Agreement
to give full force and effect to the terms and
conditions expressed herein and to more fully
define the relationship, to include, inter alia,
rights of transfer and assignment to associated companies[,] establishment of modus operandi in
Namibia, terms and conditions of the Manager's
appointment[,] basis of reporting, accounting and
audit, financial structure, responsibilities and other such matters as may reasonably be required
by either Party. The Parties shall endeavour to
complete this Agreement within three (3) months of
the date hereof."
According to Namco's further particulars for trial and its argument before us, this condition was a term that had to form part of
the option because (and I paraphrase) it was
relevant and capable of sensible application to a South African joint venture. The allegation and the submission,
irrespective of the correctness of my earlier finding that
19
the 'farm-in' clause had not been incorporated into the July
agreement, appear to be correct. That raises the question
whether these outstanding matters were of such a nature that
without their resolution the exercise of the option could
have given rise to certain and binding contractual
obligations (cf CGEE Alsthom Equipments et Enterprises
Electriques, SoutA African Division v GKN Sankey
(Pty) Ltd
1987 (1) SA 81
(A) 92A-E; Murray & Roberts
supra 516-517; Van der Merwe et al Contract: General
Principles par 3.3 and par 8). Since this provision was
couched as a suspensive condition, it cannot, in my judgment,
be said that the parties could have intended to have had a
binding agreement simply upon the exercise of the option.
They had expressly agreed that only a fuller arrangement
would have bound them to the joint venture. Fulfilment of
the condition was necessary and the condition required
consensus of the parties. It is thus not a case where the
exercise of the option would have given rise to a contract
20
and that other terms would merely have been left for later
negotiation and agreement. I therefore am of the view that
the exercise of the option could not have given rise to a
contract with certain or ascertainable terms and that on this
ground the 'farm-in' clause is void for vagueness.
The last allegedly uncertain phrase relates to the
definition of the South African concession area. It will be
recalled that it was defined as 'one or more Concession Areas
it holds in the
Republic
of
South Africa
of similar
attraction'. The focus is on 'similar attraction'. A number
of questions spring to mind (and not only to the neurotic as was suggested in argument). Some have a ready answer, others
less so.
Beginning with the obvious, namely the meaning of
'attraction': it refers contextually to features which 'draw'
a person or persons, in this case, to a marine diamond joint
venture in Namibia. Attractive features are usually
determined by emotional or subjective considerations, but it
21
is safe to assume in this case that the attraction related
to commercial considerations.
Initially in its pleadings Namco used the term
'similar potential' to paraphrase 'similar attraction', but
it later abandoned this terminology. The particulars for trial enumerated some of the attractions of the Namibian
concession area, and they were said to include the presence, within a focal point suitable for early diamond exploration,
a certain reserve potential, the size of the area, the fact
that the area extended out to sea for a distance of three
nautical miles, and the area's overall ore reserve potential. In argument, it was submitted on behalf on Namco that (1) the
Namibian standard for purposes of comparison was not the
Namibian area as it turned out to be, but as it had been
believed to be, (2) the South African area had to have a
current (i e the date of the option) attraction which the
Namibian area had held in July 1992, and (3) the 'attraction'
was the sum of those qualities, actual and assumed, which
22
drew the parties into the joint venture. In regard to the
final point, reference was made to Holberton's evidence
relating to the attractions but which was at some variance
with the particulars for trial above referred to.
Submission (1) was accepted by Conradie J and I am
content to do so too. Although the 'farm-in' clause had not
been incorporated into the July agreement, it became
effective during July only when the suspensive conditions
were fulfilled or waived, and, somewhat hesitantly, I
conclude that the date of determining the attractive features
of the Namibian venture for purpose of the option was its effective date of July. Submission (2) appears to be far-
reaching, implying that Namco could have been entitled, after
many years and after exhausting the Kerbehuk gulley area, to
a South African equivalent thereof. Since I have earlier concluded that the farm-in clause had but a limited time
span, this problem does not arise and I am also prepared, in
an attempt to make sense out of the agreement, to accept this
23
submission. Concerning submission (3), it must be borne in
mind that we are not called upon to decide what the Namibian attractions subjectively were or whether there was factually something
similar in
South Africa
. Both issues were left for
later determination. What has to be considered is whether
the agreement, properly construed, was concerned with the attraction to both parties, to only one of them, or the
objective attraction of the venture to the reasonable man in
the position of an investor. It is, in the matrix of the
agreement, unlikely that the 'attraction' could have been
intended to be anything other than the subjective attraction
of Namco to the Namibian venture: the dissatisfaction that
could have triggered the 'farm-in' option was that of Namco;
the clause had been inserted for the sole benefit of Namco;
the parties were not concerned about what other (reasonable)
investors thought of their venture; and I do not consider
it likely that Namco was interested in Benco's views on the
matter - it had to sell its proposition and its views to
24
investors.
Holberton gave, as mentioned, evidence of what had
attracted him (and, presumably, Namco) to the Namibian
venture. It is doubtful whether this evidence was admissible because if "parties intend to make the consequences of their
agreement objectively ascertainable, reference may be had
only to the standard set in the agreement ... [C]ertainty
is attained where the parties incorporate into their contract
details contained in a specified document, or where they
agree upon an objective standard for determining a
performance" (Van der Merwe et al p 163). Assuming such
evidence to have been admissible, problems arise concerning the operation and practical application of the option. Once
the occasion should have arisen for Benco to have made the
offer, it would have had to decide what to offer, and that
would have involved a determination of what the attractive
features of the Namibian venture were to Namco. These
features were not agreed features, and they were not
25
objectively determinable by Benco. No objective standard had
been set. Should Benco have erred, whether bona fide or not,
it would have been in breach of the contract. Nor would a
reasonable offer have been good enough. Only one that
satisfied the subjective test mentioned could have sufficed.
An agreement that purports to give rise to such obligations
does not create certain obligations and is accordingly void
for vagueness. This conclusion makes it unnecessary to have
regard to the question whether, once the Namibian parameters
had been established, it would have been possible to find
something 'similar' in
South Africa
. That inquiry (bearing
in mind that even if an agreement is not void for vagueness,
it may nevertheless be impossible to perform) belongs to the
next leg of the litigation.
That concludes the determination of the first
issue. The agreement is void for vagueness in the respects
set out. The second issue, namely whether Namco would have
been entitled during October 1992 to trigger the 'farm-in'
26
clause does consequently not arise. It has, however, already
been decided against Namco in the course of this judgment
when I held inter alia that such event could not have taken
place except during April 1995.
The appeal is dismissed with costs, including the
costs of two counsel.
L T C HARMS
JUDGE OF APPEAL
F H GROSSKOPF JA) concur
PLEWMAN JA)
Case No 430/94
IN THE SUPREME COURT OF
SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
NAMIBIAN MINERALS CORPORATION LIMITED
Appellant
and
BENGUELA CONCESSIONS LIMITED
Respondent
CORAM
: E M GROSSKOPF, F H GROSSKOPF, HARMS, SCHUTZ
et
PLEWMAN, JJA
HEARD
: 4 November 1996
DELIVERED
: 27 November 1996
JUDGMENT
E M GROSSKOPF. JA
2
The appellant, a company incorporated in
Gibraltar
, sued
the first respondent, a South African company, and its chief
executive officer, one Wilson, for damages in the
Cape
Provincial Division. The claim against
Wilson
has been
settled and he is no longer a party before the court. The
case against the first respondent (to which I shall refer
hereinafter as the respondent) was based on breach of
contract. When the matter came before the court a quo
(Conradie J) a separation of issues was ordered in terms of
rule of court 33(4). The issues to be tried first related to
the validity of the alleged contract and the further question
whether certain rights under the contract, if valid, could
properly have been exercised in October 1992. The import of
this latter issue will appear more clearly after I have
discussed the facts of the case. The court a quo found in
favour of the respondent both on the invalidity of the
contract and on the question relating to the exercise of
3
rights thereunder. With the leave of the court a quo the
appellant now appeals to this court.
The main facts are briefly as follows. The respondent
was the holder, either by itself or through subsidiaries, of
marine diamond concessions along the West coast of
South
Africa
. It also had (through a subsidiary) a so-called "work
contract" whereby it was entitled to exploit diamonds in a
marine concession area along the coast of
Namibia
held by CDM
(Proprietary) Limited ("CDM"). The respondent's rights under
the work contract were to remain in force for three years
after the date of signing of the contract (i e, until 10 July
1993) but could be renewed at the discretion of CDM.
The appellant was interested in participating in the exploitation of the Namibian concession. It proposed to provide finance for a
joint venture. Various negotiations
were held between the parties. The appellant was throughout
represented by one Holberton who was resident in
England
.
4
On 12 March 1992 the parties signed a document headed
"Heads of Agreement" relating to the exploitation of a
defined part of the off-shore area covered by the Namibian
work contract. I shall refer to this document as the March
heads. It recorded that the appellant would "use its best
endeavours to provide finance and backing up to the value of
Canadian $1,500,000-00 to establish economic activity on a
scale, and in a format and type, which shall be recommended
by [the respondent] and approved by [the appellant]." This
was referred to as stage 1, being the initial three year
period of the CDM contract. The respondent was to be the
project and technical manager to the venture and would be
rewarded for its services. The document set out how the joint
venture was to be financed after stage 1, and how profits
would be shared.
The March heads were subject to a number of conditions,
the main ones of which were the following. Condition 1 was
5
that CDM would grant an extension of the work contract for a
period of not less than three years from April 1992.
Condition 4 was
"The entering into by the Parties of an Agreement to
give full force and effect to the terms and conditions
expressed herein and to more fully define the
relationship, to include, inter alia, rights of transfer and assignment to associated companies, establishment of
modus operandi in Namibia, terms and conditions of the
Manager's appointment, basis of reporting, accounting
and audit, financial structure, responsibilities and other such matters as may reasonably be required by
either Party. The Parties shall endeavour to complete
this Agreement within three (3) months of the date
hereof."
Finally, condition 6 required the respondent to "confirm
a precise definition of the area" in which the proposed joint
venture would operate. The significance of this condition was
that the respondent had granted rights to exploit a part of
the area covered by its work contract to a Canadian company
represented by one Stephenson, and there was a dispute about
the extent of this area. In particular Stephenson claimed a
part of the area earmarked in the March heads for the joint
6
venture between the parties.
After the conditions there appeared the clause which is
of primary importance in the present appeal. In it the
parties are called Silven (the then name of the appellant)
and Benco (an acronym of the respondent's name). The clause
reads as follows:
"In the event that the Parties are unable to obtain
CDM's consent to a further extension beyond the three
(3) year period, or in the event SILVEN is not satisfied
by the venture returns, BENCO shall offer the right of
a farm-in to SILVEN in one or more Concession Areas it
holds in the Republic of South Africa of similar
attraction on terms no less favourable than those stated
herein."
I shall refer to this clause as the farm-in clause.
After conclusion of the March heads the parties
attempted to implement it. There were, however, a number of
obstacles that delayed progress. CDM was not prepared to
grant an extension of the work contract. Stephenson remained
obdurate in his territorial claims. In the result Holberton
(on behalf of the appellant) started casting his eyes towards
7
the respondent's South African concession areas. In this he
relied on the farm-in clause. The respondent was, however,
not inclined to be accommodating in regard to its South
African interests. It had commenced flirting with BHP
Minerals, a major mining house, with a view to a joint
venture in the respondent's South African concessions.
The matter came to a head in July 1992. Holberton came
to
Cape Town
to discuss matters with the respondent.
Stephenson was also in
Cape Town
at the time. In the result
the obstacles to the joint venture between the parties were
overcome. The respondent managed to secure an agreement with
Stephenson which, although it did not fully meet the
appellant's wishes, nevertheless gave the joint venture an
adequate unchallenged area. As far as CDM was concerned, the
parties agreed to proceed without a guarantee that the work
contract would be extended. Other conditions had been
satisfied or were deemed to have been satisfied. A new
8
contract was concluded, which I propose calling the July
agreement.
The July agreement commenced by setting out the history
of the matter. It then recorded an undertaking that the
appellant would provide finance and backing to the value of
Canadian $1.5 million to fund the joint venture. The
agreement then adverted to each of the six conditions laid
down in the March heads. In regard to condition 1 (the
extension of the work contract) it recorded that CDM's agreement had not been obtained, but that the respondent
anticipated that CDM might well in the future grant
extensions, and that the parties had agreed that the joint venture would proceed nevertheless. As far as the area was
concerned (condition 6) the July agreement provided a
definition.
The terms of the proposed joint venture were set out in
clause 3. The venture was to be called the Benib Joint
9
Venture. Provisions were laid down regarding its duration,
purpose, management structure, funding and distribution of
profits.
Clause 4 of the July agreement read as follows:
"The laws of the
Republic
of
South Africa
shall apply.
Other rights and obligations reflected in the March
Heads shall remain. Matters dealt with in this agreement
shall be governed by this agreement."
It was common cause before us that the "rights and
obligations" referred to in this clause, were mainly, if not
solely, those flowing from the farm-in clause.
The agreement was signed on 9 July 1992. Two copies of
the agreement were prepared. They were both signed by
Holberton on behalf of the appellant and by Wilson, the
second defendant in the court a quo, on behalf of the
respondent. These signatures were witnessed by one Miller (a
business associate of Holberton's) and one Smith, a director
of the respondent company.
Holberton still hoped that Stephenson might agree to an
10
extension of the area of the joint venture. He therefore left
his copy of the agreement with
Wilson
. The arrangement was
that if
Wilson
could obtain a further concession from
Stephenson, he would amend the area description in the two
contracts, initial the amendments, and send the agreements to
Holberton for signature.
Having settled matters, as he thought, Holberton
returned home to the
United Kingdom
.
Soon after the conclusion of the July agreement,
Wilson
regretted that he had entered into it. The reason was
probably that the rights granted to the appellant would
complicate the respondent's negotiations withBHP concerning
the South African concessions. In other words, it was the
farm-in clause that was worrying him. Faced with this problem
Wilson acted boldly and decisively. He tore off and destroyed the parts of the two duplicate originals of the agreements on
which the signatures appeared (both copies being fortuitously
11
in his possession), and subsequently denied that he had signed them. It is indicative of his reasons for doing so
that copies of the letters to the appellant in which these
denials appeared were sent also to BMP. As regards the March
heads, he contended that the various conditions (and
particularly the one relating to an extension of time by CDM
of the work contract) had not been satisfied, and that the
March heads consequently also did not grant any contractual
rights to the appellant.
Wilson's denial that he had signed the July agreement,
and his contention on behalf of the respondent that it was
not bound by any joint venture agreement, was treated by the
appellant as a repudiation of the contract between it and the
respondent. It accepted the repudiation on 25 September 1992
and terminated the contract. Subsequently it instituted its
claim for damages against the respondent and Wilson
personally.
12
As noted above, only some of the issues raised in the
pleadings are before us on appeal. The first issue is the
validity of the contract. The appellant relied on an
agreement that was partly in writing and partly oral. The
written parts of the agreement were the March heads and the
July agreement. In their original plea, both defendants
denied that Wilson had signed the July agreement, and further
denied that he was authorised to sign it. Moreover, it was
contended that the March heads did not constitute a binding
contract, and in any event, that the conditions on which its
validity had depended had not been fulfilled. These were the
only attacks on the validity of the contract in the original
plea. It was only in later amendments to the plea that the
questions of voidness for vagueness, with which I deal
hereafter, were raised.
Technical evidence was led at the trial which proved
that Wilson's denial that he had signed the agreement was
13
false. The respondent thereupon amended its plea to admit
that Wilson had signed the agreement. Wilson himself, in his
plea, persisted in this denial to the end (he did not,
however, give evidence to support his denial). As stated, he
is no longer a party before us. The respondent has also
abandoned the contention that Wilson was not authorized to
enter into the agreement. At present the validity of the
contract is attacked only on the ground that the contract is
void for vagueness.
The first alleged basis of vagueness may be disposed of
easily. In the July agreement the area of the joint venture
is described as from the southern boundary points of the
concession and northwards along the total extent of the
concession (being three nautical miles in width) "to the
northern boundary of Kerbehuk Mining Block". By a late
amendment to its plea the respondent contended that the
northern boundary of this area is not ascertainable. The
14
Kerbehuk Mining Block is an area on the land adjoining the
ocean. Its northern boundary is entirely on land and does not
extend into the ocean. The northern boundary of the Kerbehuk
Mining Block could therefore not form the northern boundary
of the sea area to be exploited in terms of the July
agreement. The western point of the northern boundary of the
Kerbehuk Mining Block could indeed form the eastern point of
the northern boundary of the sea area to be exploited, but
the July agreement does not indicate in which direction the
sea boundary runs from that point.
In reply to the amendment of the plea to introduce this
defence, the appellant amended its particulars of claim. It
alleged that on 8 July 1992 there was an oral agreement
between the appellant (represented by Holberton) and the
respondent (represented by Smith) that the northern boundary
of the area in which the joint venture was to operate would
be a line drawn by extending, in a straight line and into the
15
Atlantic Ocean, the northern boundary of the Kerbehuk Mining
Block, until such extended line met the western boundary of
the concession. It was further alleged that this agreement
was orally confirmed between the parties on 9 July 1992 when
the July agreement was signed, the appellant being
represented by Holberton and the respondent by Wilson.
It was common cause that evidence of the alleged
supplementary oral agreement was not rendered inadmissible by
the parol evidence rule (this being a contract partially in
writing and partially oral) and that if the oral agreement
could be proved, the respondent's objection to the definition
of the northern boundary of the area would fall away.
Holberton, in his evidence, confirmed that the oral agreement
was concluded as alleged in the amended particulars of claim.
Although both Smith and Wilson were available to give
evidence, neither did. On behalf of the respondent it was
argued that Holbertson's evidence in this regard, although
16
uncontradicted, should nevertheless be rejected as
untruthful. The court a quo was not prepared to do so and I
can see no reason for disagreeing with this finding.
The further respects in which it is contended that the
agreement is void for vagueness relate to the farm-in clause.
It will be recalled that the farm-in clause was introduced
into the July agreement in an oblique way by the preservation
of "other rights and obligations reflected in the March
heads". It was common cause in argument that the preservation of these rights pertained mainly, if not solely, to the farm-
in clause and in argument both parties analysed the clause to
determine whether it was capable of enforcement.
Before performing this exercise myself it is necessary
to state some general principles. First, the parties clearly
considered that the clause was capable of implementation.
Even before the conclusion of the July agreement the
appellant was claiming rights under the farm-in clause.
17
Although there were disputes between the parties about its
implementation (and, in particular, on what area in the South
African concessions is "of similar attraction" to the
Namibian area) there was no suggestion from the respondent
that the clause was too vague to be enforced. And, in August
1992 when the respondent wanted to get out of the contract,
Wilson adopted the extreme expedient of mutilating the
documents and falsely claiming that he had not signed them.
Quite clearly he had no doubt as to the contract's
enforceability. Moreover, as I have already stated, the
contention that the clause was void for vagueness was
inserted into the respondent's plea by amendment and formed
no part of the original formulation of the claim. We are here
dealing with a lawyer's point rather than a matter of
practical importance for businessmen. We should not be astute
to destroy a contract which the parties seriously entered
into and considered capable of implementation. See Genac
18
Properties JHB (Pty) Ltd v NBC Administrators CC
[1991] ZASCA 188
;
1992 (1) SA
566
(A) at 579F-H and authorities there cited.
Second, one must distinguish between vagueness and
ambiguity. If a contract can be interpreted to have two or
more reasonable meanings this would not by itself render the
contract void for vagueness. The correct meaning can be
determined by the use of extrinsic evidence or the process of
legal interpretation. It is only where the contract is not
capable of any effective meaning in the circumstances that it
would be too vague to be enforced.
I now turn to the clause. Reading it as a whole one has
little doubt as to its general effect. The provision as to
CDM's consent to an extension has clearly fallen away in the
light of the July agreement. Accordingly the farm-in clause
could only be invoked if the appellant was dissatisfied with
the venture returns in Namibia. In that event the appellant
was entitled to be offered a joint venture similar to the
19
Namibian one in the respondent's South African concessions.
The question then is whether this general meaning has a
sufficiently precise content to be legally enforceable. The
parties' counsel closely analysed various phrases in the
clause and I shall do likewise.
The first was "in the event SILVEN is not satisfied by
the venture returns". There was some argument in the court a
quo and in the heads of argument about the words "not
satisfied" but before us Mr Shaw, who appeared for the
respondent in this court, accepted that these words were not
too vague to be enforced. The words are ambiguous but no
more. They could either require the satisfaction of the
appellant as a fact (which is the natural linguistic
meaning) or an implication maybe read in that the test is to
be the arbitrium boni viri.(Compare Benlou Properties (Pty)
Ltd v Vector Graphics (Pty) Ltd
[1992] ZASCA 158
;
1993 (1) SA 179
(A) at 187J -
188C). Of course it is implied that the satisfaction of the
20
appellant, if that is what is required, must be an honest
one. In the Benlou case (at 188C) it was suggested that a
provision granting one contracting party a discretion in
relation to the performance of the contract may in particular
circumstances be against public policy. Mr Shaw did not
contend that this was so in the present matter, and this is
not the case made out by the respondent in the pleadings. In
any event I do not think that such a contention would be
tenable.
I turn accordingly to "venture returns". Again the
general concept is clear enough. "Return" in the relevant
sense is defined in the Shorter Oxford Dictionary as
"Pecuniary value resulting to a person from the exercise of some trade or occupation; gain, profit, or income, in
relation to the means by which it is produced; also (in
pl.), proceeds, results."
In the present case the appellant was to provide capital
for the joint venture. Its purpose was to make a profit on
its investment. Whether it did so or not would be reflected
21
in the financial results of the joint venture. And the clause
could be invoked if the appellant was dissatisfied with such
profit (or yield, return, gain, whatever). Of course, in
theory, different items may be included or excluded in computing a profit or loss, and a profit may be determined over a longer or
shorter period. I do not think that these
possible differences are material. In deciding whether it is
satisfied the appellant (or, for that matter, the bonus vir exercising his arbitrium) would have regard not only to the
figures themselves, but to the basis on which they were
compiled. The clause could obviously not be invoked if the
venture suffered a loss in a particular week when an Atlantic
storm raged. A decision to do so could hardly be honest. The
figures may also be slanted by exceptional gains or losses.
Whether, and to what extent these are to be taken into
account, would be a matter falling within the discretion of the appellant or the bonus vir, as the case may be.
22
In its judgment the court a quo held that the appellant
could not be satisfied or dissatisfied with the venture
returns in Namibia if it did not know what the returns in
South Africa were likely to be, and that this feature
introduced a further element of uncertainty into the
provision. This finding was not supported before us and I
need say no more about it.
The next words to be considered are "farm-in ... on
terms no less favourable ...". Now the expression "farm-in"
is certainly not a common one, but in the context its meaning
is clear enough. If the appellant is dissatisfied with the
returns in Namibia, it is entitled to a similar joint venture
with the respondent in South Africa. "Farm-in" in the context
means no more than the right to participate in a joint
venture in which the appellant would be able to invest with a view to exploiting the respondent's rights.
As far as the expression "terms no less favourable" is
23
concerned, the respondent's main argument was the following.
It will be recalled that the farm-in clause was introduced
into the July agreement by the words "Other rights and
obligations reflected in the March heads shall remain". Where
the farm-in clause refers to "terms ... stated herein" it
must accordingly, so it was contended, refer to terms stated
in the March heads. And in fact no clear terms were there
stated.
I do not agree. In the context of the parties'
agreement, which, as stated above, was contained in different
documents and oral agreements, "herein" in my view means no
more than "in our agreement". Any other interpretation would
be absurd. In this regard it must be emphasized that the
March heads itself made specific provision for a further
agreement to more fully define the relationship between the
parties.
The position then is that the terms of the parties'
24
joint venture were set out in the July agreement. These terms
could be applied mutatis mutandis to any substituting venture
in South Africa.
Finally I come to the expression "Concession Areas ...
of similar attraction." The first question here is: when must
the similar attraction exist? It seems to me there are only
two possibilities - either when the contract was concluded,
or when the appellant seeks to invoke the farm-in clause.
This ambiguity does not render the provision void for
vagueness, and need not be resolved for the purposes of the
present case.
Then one may ask: to whom must the area be attractive?
I do not think the parties intended either of them to have a
discretion in this respect. The test must be an objective
one. The answer would then be: it must be attractive to a
businessman proposing to invest in a venture to exploit the
diamonds in the area.
25
The more difficult question is what the criteria of
attractiveness are. In the context the attraction must be a financial one. In the judgment a quo the learned judge held
that the similarity required is one, not between the offered
area and the Namibian area as it turned out to be, but
between the offered area and the Namibian area as the parties
believed it to be. I agree, but would add that it is in
particular the appellant's belief which is relevant.
There is considerable evidence before us as to what the
parties knew, believed and hoped about the Namibian
concession area. Technical evidence could show what the
attributes and potentialities are of any area offered in
terms of the farm-in clause. Of course the defects in the offered area would also have to be taken into account. Whether the South
African area is, on balance, of similar
attraction would be determined by weighing up all the
different factors. Here too I expect technical evidence would
26
be necessary. It does not in principle seem to me to be
beyond the capacity of a court to perform such an exercise.
In a particular case it might of course be impossible to say
on the evidence whether or not the offered area is of similar
attraction to the Namibian area. In such a case the party
burdened by the onus of proof would lose. I do not think,
however, that similar attraction is intrinsically incapable
of proof. And I would here repeat that the parties, who were
intimately concerned with the technical and financial aspects
of the respective concession areas, clearly entertained no
doubt about the enforceability of the provision.
For the foregoing reasons I consider that the contract
between the parties was valid and enforceable.
I turn now to the question whether the farm-in clause
would have been exercisable in October 1992. This question
arises as follows. It will be recalled that the appellant
accepted the respondent's repudiation of the contract in
27
September 1992 and the contract was then cancelled. In
calculating its damages, the appellant alleged that, but for
the cancellation of the contract, it would have exercised the
farm-in clause in October 1992. This allegation raises two
questions to be decided now, namely
a)
whether the contract permitted the exercise of the
farm-in clause as early as October 1992;
b)
whether the appellant would, as a fact, have been
dissatisfied with the venture returns in October 1992.
I deal first with question a). In accordance with its
terms, the farm-in clause is exercisable in two sets of circumstances. The first is if the parties are unable to
obtain CDM's consent to a further extension beyond the
initial three year period. The second is if the appellant is
not satisfied with the venture returns. The respondent's contention is that the three year period, expressed with
relation to the first set of circumstances, must also be read
28
into the provisions regarding the second set of
circumstances. Accordingly the respondent contends that the
appellant cannot invoke the farm-in clause prior to the end
of the three year period for which the work contract was
granted.
The words of the clause do not support the respondent's
submission. The two sets of circumstances in which the right
to a farm-in would arise, are expressed disjunctively. The
three year period is mentioned with relation to the first set
only. On the face of it, the farm-in is exercisable whenever the appellant is not satisfied with the venture returns. The appellant
consequently contended that the right of a farm-in
could be claimed at any time in the future if the appellant became dissatisfied with the venture returns. Neither party alleged that
there was any tacit term which would limit the
time within which a farm-in could be claimed. However, it does seem to me that the appellant's attitude is probably
29
contrary to the intention of the parties. The surrounding
circumstances would seem to indicate that the parties did not
intend that the right of farm-in would continue indefinitely.
It seems that some tacit limitation may have to be read in. I do not however have to pursue this point because there is
no complaint that the appellant waited too long to claim the farm-in. The objection is rather that it exercised the right
too soon. There is no reason in my view why an implied or tacit term should be read into the farm-in clause to the
effect that the clause could not be invoked before a certain
time. If the appellant could show that it would honestly have
been dissatisfied with the venture returns soon after the
conclusion of the contract (or that the bonus vir would have
been dissatisfied, as the case may be) there is nothing in
the agreement to disentitle it from then claiming the right
to farm-in. The parties could hardly have intended that they
should actually exploit the Namibian work area, and thereby
30
incur the loss (or inadequate profit) that was sure to
eventuate, before the farm-in clause became applicable.
I turn now to the facts giving rise to the appellant's
dissatisfaction. Mr Shaw did not pursue the contention that
the appellant was not entitled on the facts to be
dissatisfied with the venture returns and I shall therefore
deal with them fairly briefly. It will be recalled that the respondent's rights in Namibia derived from a work contract
between its subsidiary and CDM. In terms of this contract the
subsidiary was bound to ensure production in the area "at a
mutually acceptable rate". It was the intention of the
parties hereto to commence operations immediately, and in an
area known as the Kerbehuk gully area they could have enjoyed
initial production figures of 1 376 carats per month (16 512
carats per year). Moreover, they intended moving rapidly to
more sophisticated remote-controlled mining techniques and
thus to expand their production. At the time of the
31
conclusion of the contract CDM was encouraging exploitation
of the area at full production. The scale of production that
was contemplated by the parties was 250 000 carats per annum. On 11 August 1992 De Beers/Centenary, the parent of CDM,
published half-yearly results containing the statement that
the Central Selling Organization, through which De Beers and
CDM sold their diamonds, would reduce its contractual
obligation to take delivery of diamonds from producers by
twenty-five per cent from September 1992. This was because of
a down-turn in the diamond market. The appellant was
concerned about this, but was told by the respondent that the
cut would not affect the joint venture's operations. However,
in October the appellant learnt that CDM had limited the
respondent to a production limit of only 9 600 carat for the
whole of its work area for 1993, which would presumably have
had to be shared with Stephenson. On this caratage the
proposed development could not take place and the production
32
of such a small quantity of diamonds would probably have
resulted in a loss. There was no knowing how long this
limitation, or a similar one, would remain in force.
In my view these circumstances justified the conclusion
(whether by the appellant or the notional bonus vir) that the
joint venture could not realise a reasonable return on
capital in the foreseeable future.
I conclude therefore that the appellant would have been
entitled to invoke the farm-in clause in October 1992.
For the above reasons I would uphold the appeal.
E M GROSSKOPF, JA
SCHUTZ, JA Concur