THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
REPORTABLE
Case number: 656/02
In the matter between:
SOUTH AFRICAN FORESTRY
COMPANY LIMITED APPELLANT
and
YORK TIMBERS LIMITED RESPONDENT
CORAM: STREICHER, CAMERON, BRAND JJA,
JAFTA et PATEL AJJA
HEARD: 20 AUGUSTS 2004
DELIVERED: 9 SEPTEMBER 2004
Summary: Where contractual provis ions became unworkable through
statutory amendment while government still a party to contracts – appellant as
successor to government's right and obli gations cannot rely on supervening
impossibility – role of good faith in cont ract – importation of implied terms that
contracting party will act reasonably and in good faith – frustr ation of rights
conferred upon other contra cting party – amounting to breach in the form of
both malperformance and repudiation.
_____________________________________________________
JUDGMENT
BRAND JA/
2
BRAND JA:
[1] The outcome of this appeal will determine the fate of two
contracts between the parties that were entered into more than 30
years ago. For presen t purposes, the terms of the two contracts
were identical. In each case the South African Government, as the
one contracting party, undertook to sell to the other contracting
party softwood saw logs obtained from two government plantations
in the Mpumalanga province. The contracts were referred to as the
'Witklip agreement' and the 'Sw artfontein agreement' after the
plantations from which the sa w logs derived. In 1982 the
respondent ('York') took over all th e rights and obligations of the
other party in terms of both contracts. With effect from 1 April 1993
the government, in turn, transferre d all its rights and obligations
under the contracts to the appell ant ('Safcol') pursuant to the
provisions of s 4 of the Managemen t of State Forests Act 128 of
1992.
[2] In 1999 Safcol instituted action in the Pretoria High Court for
an order declaring that the two contracts had been terminated. The
court a quo (De Vos J) found that Safcol had failed to make out a
case for an order to that effect. Th is appeal is with the leave of the
court a quo.
3
[3] The two contracts were entere d into at a time when the
South African Government decided , as a matter of policy, to
encourage investment by the priv ate sector in the sawmilling
industry. One of the ways of giving effect to that policy was to enter
into long term agreements with sawmills to supply them with
softwood logs from government plantations so as to provide
investors with some security of tenure in a ca pital intensive
industry. In the contracts the go vernment is described as the seller
and the other contracting party as the purchas er. The intention on
the part of the seller to provi de the purchaser with security of
tenure was specifically recorded in clause 4.1 of the contracts. In
the same vein clause 4.2 went on to provide that the contract
would, subject to certain te rms and conditions, operate for an
indefinite period. Safcol's first contention as to why the unlimited
duration of the two cont racts had come to an end, was that the
contracts had lapsed through superv ening impossibility, in that
certain of their material provisio ns had become unworkable. In the
alternative Safcol contended that the contracts had been validly
cancelled by it on 10 November 19 98 as a result of York's breach,
either through repudiation of or t hrough non-compliance with its
obligations in terms of clauses 3.2 and 4.4. Since the provisions of
these two clauses also underlie Safcol's contentions based on
4
supervening impossibility, it is ne cessary to refer to their contents
and context in some detail.
RELEVANT PROVISIONS OF THE CONTRACTS
[4] Clause 3.2 was substituted in the two cont racts during 1979
and 1982, respectively. It is to be read in conjunction with clause
3.1 which listed the prices of saw l ogs in the various classes at the
inception of the agreements. It was obviously foreseen by the
parties, however, that these prices would not remain static for the
indefinite contract period. Consequently, clause 3.2 from the outset
provided a mechanism for future price revisions. Under the original
clause 3.2 a deadlock in price n egotiations would lead to advice
being sought from the Board of Trade and Industries and the
automatic termination of the cont racts in the event that agreement
could still not be reached on the bas is of such advice. The import
of the subsequent amendment of clause 3.2 was to change the
mechanism for price revision. In its amended form, the relevant
part of the clause reads as follows:
'Log prices shall be subject to revision provided that changes of price shall not
take place more often than once ever y twelve months and provided further
that:
(i) The Seller and the Purchaser shall both agree to new prices;
5
(ii) New prices shall bec ome effective on a date to be agreed upon by the
Seller and the Purchaser, or, if no agr eement in regard to such date can be
reached within 30 days of the date on which new prices were agreed to, on 26
March of the year in which negot iations between the Seller and the
Purchaser, concerning such prices, commenced;
(ii) Should no agreement be reached by the parties as to whether new
prices are to be introduced or the existing prices retained, within 120 days
from the date on which negotiations concerning new prices were first initiated,
the matter shall be referred to the Minister of Envir onmental Affairs and if the
Minister is of the opi nion that no such agreement can be reached the matter
shall be referred to arbitration.
…'
[5] Both clauses 3.2 and 4.4 are to be read in their contextual
relationship with clauses 4.2 and 4.3. These two clauses provide
that:
'4.2 The contract shall operate for an unspecified period but shall in any
event and subject to clauses 3.2(c), 4.3, 4.4, 28.1 and 28.2 [clause 28 deals
with breach of contract on the part of York] remain in force for an initial period
of five years commencing on [1 Apr il 1968 and 1 April 1970, respectively] and
shall remain in operation at the conclu sion of the said in itial period of five
years for further successive periods of five years, provided that the parties
shall have agreed mutually in advance as to the terms which shall apply
during each successive period of five years. In the ev ent of no agreement
having been reached regarding the terms which are to apply in regard to any
6
period of five years, the ma tter shall be referred to the Minister of Forestry for
a decision, and should his decision be acc eptable to both parties, the contract
shall continue for such period of five years on the terms and conditions of this
contract as modified by the Minister. Should however the Minister's decision
not be acceptable to the Pu rchaser, the contract shall nevertheless continue
for such a five year period on the sa me terms and conditions as laid down in
this contract but it shall, unless otherwise agreed by the parties, terminate at
the end of the five year period concerned.
4.3 Notwithstanding the pr ovisions contained in clause 4.2 the Purchaser
shall at any time have the right to canc el the contract by giving to the Seller
one year's written notice of his intention so to do.'
[6] Clause 4.4 provides:
'4.4 Should it at any stage, in the opinion of the Mi nister of Forestry, be in
the interest of the wood industry or t he country as a whole to terminate this
contract, then the Seller s hall be entitled to cancel the contract on giving the
Purchaser written notice of at least five years. In the ev ent of the contract
being cancelled in terms of this clause, the payment of compensation subject
to Treasury and if necessary Parlia mentary authority, will be considered by
the Seller.'
FACTUAL BACKGROUND
[7] A proper understanding of the contentions advanced by
Safcol on the basis of these clauses requires a somewhat more
detailed exposition of the background facts. I start with the history
7
of price revisions pursuant to the provisions of clause 3.2. While
the government was still administeri ng the contracts, it sought an
upward revision of prices practically every twelve months. After
Safcol stepped into the shoes of the government in 1993, it did the
same. The way in which negotiat ions for the increases sought
were initiated, was by means of a letter from the government and,
subsequently, Safcol, setting ou t its motivation for the price
increases sought as well as th e new price stru ctures proposed.
The letter was sent to every individual sawmill that was a party to a
long term supply contract with the government in the same terms
as the ones involved in this case. At all relevant times, there were
about sixteen of them. These sawmill owners, including York,
organised themselves into an informal association called the South
African Lumber Millers Associati on or Salma. Although clause 3.2
of the respective contracts req uired an agreement to be reached
with each individual contractor separately, negotiations were
conducted between the government (later Safcol) and Salma.
[8] It was accepted by every body concerned, albeit on an
informal basis, that the price increases agreed upon between the
government and Salma would be re garded as a newly established
ruling price which would not be deviated from unless a particular
8
contractor could persuade the government that there was good
reason why it should pay less t han the ruling price. Despite this
common understanding that, as a matter of course, individual
contractors would agree to the increases indicated by the new
ruling price, York refused to do so in respect of the price increases
agreed upon in 1991, 1992 and 1993. When Safcol took over the
administration of the two contracts from the government with effect
from 1 April 1993, it therefore inherited a pr ice dispute with York
for three different periods. In the meantime, Safcol was obliged to
supply York with saw logs at 1990 prices while all other long term
contractors were paying the increa sed prices. This obviously gave
York a substantial edge on its competitors in the marketplace.
[9] Safcol saw the solution to its problem in the reference to
arbitration provided for in clause 3. 2. In order to do so, however, it
required an expression of opinion by the Minister of Environmental
Affairs, or whoever was the Minister responsible for the
Department of Forestry at the ti me ('the Minister'), that no
agreement on the new prices could be reached by the parties.
Consequently, Safcol approached the Minister with a motivated
request to express an opinion to that effect. York's response in its
letter to the Minister was that such opinion would be unwarranted
9
because the possibility of an agreement could not be excluded. On
this occasion, as on all other subsequent occasions relevant in this
matter, York was represented by its chief executive officer, Mr
Solly Tucker, who is an admitted but non-practising advocate.
Despite Tucker's assertions to the contrary, the Minister agreed
with Safcol that in all the circumstances an agreement between the
parties was not a real possibility. This gave rise to a review
application by York in the Pretor ia High Court for the Minister's
decision to be set aside. The ensuing litigation was eventually
settled in April 1994. In terms of the settlement Y ork undertook to
pay the increased prices claimed by Safcol with effect from April
1991 without interest, by way of a surcharge on future deliveries of
saw logs by Safcol. It is comm on cause that the outcome of the
litigation and the eventual settlement was to the substantial benefit
of York.
[10] In terms of the settlement Y ork also agreed to the new price
increases, with effect from 1 Ap ril 1994, that had in the meantime
been agreed upon by Salma and all the other long term
contractors. As will soon transpire, that was the last time that York
actually agreed to an increase in price.
10
[11] Towards the end of 1994 Sa fcol decided to negotiate an
amendment of the terms of all t he long term supply agreements in
accordance with the provisions of cl ause 4.2. Safcol initiated these
negotiations by way of a standard letter to all its long term
contractors, including York. One of the amendments proposed was
that the contract period stipulat ed in clause 4.2 be reduced from
five years to three ye ars and that the terms of the contract should
therefore be revised at three year instead of five year intervals.
Eventually, most of the long term contractors agreed, after
extended negotiations, to an am endment of the agreements, more
or less in accordance with Safcol 's proposals. York's response, on
the other hand, was that Safcol's proposal to shorten the contract
period was in breach of the Constitu tion in that it would amount to
an expropriation without appropriate compensation. Its
counterproposal was that the contract period be extended to 20
years. At a later stage it even suggested a contract period of 50
years. In November 1995 York w ent one step further. It sought an
order in the Pretoria High Court declaring, inter alia, that it was not
obliged in terms of the provisions of clause 4.2
'to negotiate in regard to t he indefinite duration of t he contract … or the fact
that it is to be comprised of successi ve five year periods and that, should he
11
be called upon to do so, it is not open to the Minister of Forestry to impose
terms and conditions which impinge upon the aforesaid two matters …'
[12] In these circumstances, Sa fcol concluded that an agreement
with York regarding the variation of the terms of the contracts
under clause 4.2, was highly unlikel y. Consequently, it redirected
its efforts to obtain York's cons ent to the price increases for 1995.
In a letter to York, dated 1 De cember 1995, it therefore proposed
price increases and pointed out that these increases had already
been agreed upon by the other long term contractors and had in
fact been paid by them since 1 August 1995. York's reaction was
not to make a counterp roposal about price, but to revert to the
pending litigation about the propo sed amendments to the terms of
the contract and to ot her issues between th e parties. In order to
avoid entanglement in disputes that were the subject of pending
court proceedings, Safcol decided to suspend the price
negotiations until the litigation had been resolved.
[13] In September 1996 the court case was settled. As a
consequence, Safcol attempt ed to resume the suspended
negotiations regarding 1995 prices which had in the meantime
been overtaken by another price increase for 1996. Again Tucker's
reaction on behalf of York was not to make any counterproposal
12
about price, but to revert to the issues concerning either the
amendment or the implementation of the contracts. From then
onwards, this became Tucker's repeated tactic and strategy. Every
endeavour on the part of Safcol to negotiate an increase in price
was deflected by Tucker's insist ence on discussing issues of a
different kind.
[14] At the beginning of 1997, Sa fcol decided that the parties had
reached deadlock in their price nego tiations and that arbitration
was the only way out. It therefore res olved to obtain the Minister's
opinion that the parties were unable to reach agreement, as
contemplated in clause 3.2. York denied that the reference to the
Minister was warranted. As a result , Safcol sought an order in the
Pretoria High Court confirming th e propriety of its approach. This
application was opposed by York. One of the defences raised by
Tucker was that, on a proper inte rpretation of clause 3.2, a
reference to the Minister could occur only if the parties were
unable to agree that there should be any price variation at all. This
argument would entail that if the seller was seeking a price
increase while the purchaser s uggested a downward variation in
price, that would exclude any approach to th e Minister and,
consequently, any reference to pri ce arbitration. Another defence
13
raised by Tucker was that Safcol was too pessimistic in that, given
time, the parties would eventually be able to reach agreement. The
court was not impressed by Tucker' s arguments. In the result, the
declaratory order sought was gran ted. York lodged an appeal to
the full court. That appeal was dismissed on 7 September 1998.
[15] The effect of t he full court's judgment was that the first
stumbling block in Safcol's way to refer the 1995 price increases to
arbitration was eventually removed. In the meantime, however, the
train had moved on. Price incr eases were agreed upon and were
in fact being paid by virtually al l the other long term contractors, in
respect of 1996, 199 7 and 1998 while York was still paying 1994
prices. On average it was paying 58,6 per cent less for saw logs
than its competitors. As a cons equence, it was able to undercut
prices and extend its market shar e without sacrificing any profit.
Safcol realised that in these circ umstances it would not be able to
win approval for further price in creases with Salma until its
problems with York had been resol ved. To avoid further delay,
Safcol therefore proposed, after York's appeal had been dismissed
by the full court, that the ref erence to the Minister be abandoned
and that they proceed directly to arbitration on all four suggested
price increases between 1995 and 1998.
14
[16] This proposal was rejecte d by York. Whereas it had
previously resisted any reference to the Minister, it now proclaimed
his involvement indispensable in that he coul d facilitate a
settlement between the parties. Moreover, Tucker found support
for York's cause in the injunc tion against more than one price
increase during any twelve m onth period provided for in clause
3.2. In the light of York's a ttitude, Safcol had to approach the
Minister. It did so in October 1 998. York, however, again opposed
any expression by the Minister of an opinion that agreement could
not be reached. Apart from the recurring a rgument that, despite
the odds, the parties could st ill come to an agreement, Tucker
raised the objection that Safcol had approached the wrong
Minister. The fact that this obje ction was in direct conflict with a
pertinent admission by him in earl ier court proceedings, obviously
did not perturb him. A further a rgument raised by Tucker was that
the Minister could not consider the matter until the parties had
agreed on his terms of reference. Finally he suggested that the
Minister should recuse himself on grounds of perceived bias in the
light of pending litigation betw een York and the Minister's
department on matters of a similar kind. This suggestion was
difficult to reconcile with Tuck er's earlier insistence that the
Minister should remain involved.
15
[17] If Tucker's objections were ai med at persuading the Minister
to distance himself from the ma tter, he was successful. On 31
December 1998 the Minister responded:
'I decline to form an opinion as to w hether an agreement on log prices can be
reached between SAFCOL and Yorkcor. I therefore cannot accept the
referral.'
[18] At more or less the same time, Safcol approached the
Minister to take a decision under clause 4.4. It will be remembered
that while York had the right to cancel the contract by giving one
year's written notice to that effe ct in terms of clause 4.3, the
contracts afforded Safcol no such opportunity. Clause 4.4 provides
in the absence of a breach of cont ract by York that Safcol can only
cancel the contract on five years' written notice and only if the
Minister of Forestry is of the opinion that it would 'be in the
interests of the wood industry or the country as a whole to
terminate this contract'. Safcol's request to the Minister to express
the opinion contemplated in 4. 4 was also opposed by York, inter
alia on the basis that the Minist er was biased. This time the
Minister did not decline to bec ome involved but he refused to
express the opinion sought by York.
16
SUPERVENING IMPOSSIBILITY
[19] Safcol's case that the contracts had lapsed through
supervening impossibility is pr imarily based on the Minister's
alleged refusal to perform his assigned functions in terms of
clauses 3.2 and 4.4. With regard to the latter clause Safcol has
failed to establish that the Mini ster had actually refused to perform
the function allocated to him. For that reason alone Safcol's case,
insofar as it is based on clause 4.4, cannot be sustained. As to
clause 3.2, the Minister had cl early refused to become involved.
Given this, Safcol contended that the Minister's involvement was
an integral cog in the mechanism for price revisions created by
clause 3.2, while this mechanism in turn formed an essential part
of the contracts as a whole. Consequently, Safcol's argument
went, the Minister's refusal to perform his allocated function made
price revisions impossible and these contracts of inordinate
duration unworkable. For its contenti on that the contracts had thus
been terminated through su pervening impossibility, Safcol sought
authority in the decision of this court in Kudu Granite Operations
(Pty) Ltd v Caterna Ltd 2003 (5) SA 193 (SCA). The contract in
that case contemplated that the parties should reach agreement
on the amount of what was referred to as the 'CAG loan account'.
Failing such agreement the am ount of the loan was to be
17
determined by a firm of audi tors, KPMG. The parties could not
reach agreement on the amount of the loan account and KPMG
was either unwilling or unable to resolve their dispute. Because of
this, so it was held, the contra ct had failed. The reason for this
finding appears from the followi ng statement by Navsa JA and
Heher AJA (at 201H-I):
'Caterna's case was one of a lawful agreement which afterwards failed without
fault because its terms could not be impl emented. The intention of the parties
was frustrated. The situation in wh ich the parties found themselves was
analogous to impossibility of perform ance since they had made the fate of
their contract dependent upon the conduct of a third party (KPMG) who was
unable or unwilling to perform. In such circumstances the legal consequence
is the extinction of the contractual nexus: …'
[20] Though I agree that in the present case it can also be said
that the intention of the part ies became frustrated when the
Minister refused to become involved, there is one feature which, in
my view, renders the Kudu Granite case distinguishable on the
facts. In the latter case KPMG c ould not be compelled to perform
its allocated function. That was not the Minister's position at the
time when clause 3.2 was intro duced by way of an amendment to
the two contracts under cons ideration in 1979 and 1982,
respectively. At that time the Minister was under a statutory duty to
18
exercise the discretion conferred upon him by clause 3.2 when
requested to do so. This statut ory duty originated from the
provisions of s 30(2) of the Forest Act 72 of 1968 which read as
follows:
'Whenever on revision of prices of fore st produce derived from State forests
and in respect of which contracts of sale for a period of 5 years or longer have
been concluded, a dispute ar ises on which, in the opinion of the Minister,
agreement cannot be reached, such dispute shall be submitted to arbitration.'
[21] Section 30(2) was introdu ced by s 9 of the Forest
Amendment Act 87 of 1978. It wa s tailor-made for long term
contracts of the present kind a nd it was obviously intended to
provide the statutory substruct ure for the Minister's involvement
contemplated in the new clause 3.2 proposed at the time. Soon
thereafter clause 3.2 was graft ed upon all these contracts.
Succinctly stated, the new s 30(2) was aimed at creating a specific
statutory power and duty for the Minister to exercise the discretion
conferred upon him by clause 3.2 of the contracts.
[22] When the 1968 Forest Act wa s replaced by the Forest Act
122 of 1984 with effect from 27 March 1986, the essential
provisions of s 30(2) were re-enacted in s 17(4) of the latter Act. A
fundamental change was brought about, however, with the passing
19
of the Management of State F orests Act 128 of 1992 ('the
Management Act'), which came into operation on 1 August 1992.
Section 4(3)(c) of Management Ac t provided in effect that, once
the State's rights and obligations in terms of a particular long term
contract had been assigned to Safcol, as envisaged by the
provisions of the Act, s 17(4) of the 1984 Forest Act would no
longer apply to that c ontract. Consequent upon the enactment of s
4(3)(c) of the Management Act, the po sition was that although the
Minister still had the power to perf orm the role allo cated to him in
clause 3.2, he was no longer under an express statutory duty to do
so and his involvement could t hus no longer be compelled on this
basis.
[23] In this light, York's answer to this part of Safcol's case was
that the impossibility relied upon amounted to self created
impossibility in that it was br ought about by the South African
Government, while it was still a part y to the contra cts, through the
enactment of s 4(3)(c) of the Man agement Act. As a matter of law,
so York's argument proceeded, se lf created impossibility does not
discharge the contract, but leav es the party whose conduct
created the impossibility liabl e for the consequences (see eg
Christie, The Law of Contract in South Africa 4th ed 552 and the
20
authorities there cited). Accordi ngly, York contended, Safcol's
reliance on supervening impossibility cannot be sustained. Safcol's
counterargument was twofold. Firstl y, that it (Safcol) cannot be
held responsible for the passing of legislation by its predecessor.
Secondly, that, in any event , legislation which renders
performance of a government contract impossible can be
described as self created impossi bility in the contractual sense
only where the legislation had been employed by the government
as a stratagem to avoid its obligat ions in terms of the contract. If
the legislation was intended to bring about change on a much
wider front, so the argument w ent, it cannot be regarded as an
instance of self created impossibility of a particular contract. Safcol
sought authority for this line of argument in Gordon v
Pietermaritzburg-Msunduzi Transi tional Local Government and
Another 2001 (4) SA 972 (N) 978B-C.
[24] I find Safcol's counterargum ent unpersuasive in both its
constituent parts. It is true that Safcol is not the government and
that it cannot be held responsi ble directly for the enactments of
Parliament. However, when s 4(3)(c) of the Management Act came
into existence, the government was still one of the contracting
parties. Indeed s 4(3)(c) formed part of the very same legislation
21
that enabled the government to t ransfer its rights and obligations
under the contracts to Safcol with out the cooperation of York. If,
before the actual transfer of the contracts to Safcol, the
government were to rely on the impossibility of performance
created by its own legislation, it would clearly be open to York to
raise the argument that the impossi bility was a self created one. If
that response was valid agains t the government, it could not be
avoided by the subsequent transfer of the contracts to Safcol. After
all, the notion that Safcol can be in a better position than the party
from whom it obtained its cont ractual rights, appears to be
untenable, particularly where York had no say in the assignment of
the government's obligations to Safcol.
[25] The second leg of Safcol's counterargument is based on the
supposition that the government can be denied reliance on
impossibility created by its own legi slation only if the legislation in
question amounted to a legal stra tagem by the government to
avoid its contractual obligations . In my view the supposition is
invalid. Why should the governmen t be allowed to rely on its own
legislative enactments to avoid its contractual obligations where
the legislation was due, say, to legi slative mistake? After all, as a
matter of law, the sanction against reliance on self created
22
impossibility is not limited to situ ations where the act causing the
impossibility could somehow be described as wrongful or
reprehensible (see Christie op cit). Of course, the position could be
quite different if the legislat ive enactment under consideration
relates to matters of general public interest (see eg Gordon v
Pietermaritzburg-Msunduzi Tran sitional Council, supra 978B-D).
That, however, does not appear to be the position in this case.
Here we have the rather peculiar si tuation that s 17(4) of the 1984
Act was enacted solely to facilita te the contracts of the present
kind. As a consequence, neither s 17(4) nor its revocation in terms
of s 4(3) of the Management Act could be said to affect the
interests of anyone but the partie s to these contracts. Though we
do not know why it was thought nec essary that s 17(4) of the 1984
Forest Act should be rescinded, th e most likely reason appears to
be legislative mistake. After all, I can think of no reason why
Parliament would have intended t hat Safcol should be saddled
with an unworkable contract (cf al so s 74(5) of the National Forest
Act 84 of 1998). For these rea sons Safcol's case based on
supervening impossibility cannot be sustained.
23
BREACH OF CONTRACT BY YORK
[26] This brings me to that part of Safcol's case which is based
on York's breach of contract. The particular breach relied upon
was that York, by its conduct over an extended period of time, had
acted in breach of an implied term of the contract s, alternatively
that York repudiated its obligat ions arising from the same term.
This implied term, as formulated by Safcol, was said to have
imposed an obligation on York to act in accordance with the
dictates of reasonab leness, fairness and good faith when Safcol
exercised its rights in terms of clauses 3.2 and 4.4 of the contracts.
[27] York's answer to these conten tions, which found favour with
the court a quo, was that they were in conflict with the judgments
of this court in Brisley v Drotsky 2002 (4) SA 1 (SCA) paras 21-25
and 93-95 and Afrox Healthcare Beperk v Strydom 2002 (6) SA 21
(SCA) paras 31-32. In these cases it was held by this court that,
although abstract values such as good faith, reasonableness and
fairness are fundamenta l to our law of contract, they do not
constitute independent substantive rules that courts can employ to
intervene in contractual relatio nships. These abstract values
perform creative, informative and controlling functions through
established rules of the law of contract. They cannot be acted
24
upon by the courts directly. Accept ance of the noti on that judges
can refuse to enforce a contrac tual provision merely because it
offends their personal sense of fairness and equity, will give rise to
legal and commercial uncertainty. A fter all, it has been said that
fairness and justice, like beauty, often li e in the eye of the
beholder. In addition, it was held in Brisley and Afrox Healthcare
that – within the protective limit s of public policy that the courts
have carefully developed, and c onsequent judicial control of
contractual performance and enfo rcement – constitutional values
such as dignity, equality and freedom require that courts approach
their task of striking down or de clining to enforce contracts that
parties have freely concluded, with perceptive restraint.
[28] Safcol's argument is, however, that its case is not directly
based on the abstract no tions of fairness and good faith, but on a
term implied by law under the in formative influence of good faith.
Thus understood, Safcol's argument went, its case amounts to an
application and not a negation of the judgments in Brisley and
Afrox Healthcare . This argument is not without appeal in logic,
particularly in the light of estab lished principles regarding implied
terms. Unlike tacit terms which are based on the inferred intention
of the parties, implied terms are im ported into contracts by law
25
from without. Although a number of implied terms have evolved in
the course of development of our contract law, there is no numerus
clausus of implied terms and the courts have the inherent power to
develop new implied terms. O ur courts' approach in deciding
whether a particular term should be implied provides an illustration
of the creative and informativ e function performed by abstract
values such as good faith and fairness in our law of contract.
Indeed, our courts have recognised explicitly that their powers of
complementing or restricting the obligations of parties to a contract
by implying terms should be exer cised in accordance with the
requirements of justice, reason ableness, fairness and good faith
(see eg Tuckers Land and Development Corporation (Pty) Ltd v
Hovis 1980 (1) SA 645 (A) 651C-652G; A Becker & Co (Pty) Ltd v
Becker and Others 1981 (3) SA 406 (A) 417F-420A; Ex Parte
Sapan Trading (Pty) Ltd 1995 (1) SA 218 (W) 226I-227G). Once
an implied term has been recognis ed, however, it is incorporated
into all contracts, if it is of general application, or into contracts of a
specific class, unless it is spec ifically excluded by the parties (see
eg Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial
Administration 1974 (3) SA 506 (A) 531D-H). It follows, in my view,
that a term cannot be implied merely because it is reasonable or to
promote fairness and justice between the parties in a particular
26
case. It can be implied only if it is considered to be good law in
general. The particular parties and set of facts can serve only as
catalysts in the process of legal development.
[29] Conceptually, Safcol's argum ent is therefore well founded in
the principle that a term can be implied if it is dictated by fairness
and good faith. The further prog ression of the argument is,
however, flawed by misconception . It confuses the rationale for
implying a term with the contents of the term to be implied. To say
that terms can be implied if di ctated by fairness and good faith
does not mean that these abstr act values themselves will be
imposed as terms of the contract.
[30] The acceptance of the new implied term contended for by
Safcol will mean that it becomes a term of every c ontract that the
parties must not only perform thei r obligations in compliance with
the provisions of the contract, but that they must do so in
accordance with the dictates of fa irness and good faith. This is in
conflict with the established pr inciples of our law. The question
whether parties have complied with their contractual obligations
depends on the terms of the cont ract as determined by proper
interpretation. The court has no power to deviate from the intention
of the parties, as determined th rough the interpretation of the
27
contract, because it may be regarded as unfair to one of them (see
eg Scottish Union & National Insur ance Co Ltd v Native Recruiting
Corporation Ltd 1934 AD 458 at 465-466; Robin v Guarantee Life
Assurance Co Ltd 1984 (4) SA 558 (A) 566 H-I). Once it is
established that a party has complied with his or her obligations as
properly determined by the terms of the contract that is the end of
the inquiry.
[31] Moreover, acceptance of Safcol 's contentions will result in
negation of the considerations and reasoning underlying the
decisions in Brisley and Afrox Healthcare. To say that contractual
stipulations cannot be avoided on the basis of abstract notions
such as fairness and g ood faith, but that the same result can be
attained when a party's conduct is said to offend these same
abstract notions, because they have been imported by means of
an implied term, amounts to a dist inction without a difference. The
outcome will again depend on the in dividual judge's perception of
what is just and fair. I therefore find myself in agreement with the
finding by the court a quo that Safcol's argument based on an
implied term demanding reaso nableness and good faith on the
part of York, is in conflict with the decisions of this court.
28
[32] Unlike the court a quo, I do not believe, how ever, that this is
the end of the matter. The pivo tal question remains whether York
has complied with its obligations in terms of clauses 3.2 and 4.4 of
the contracts. This will depend on a proper interpretation of these
two clauses. In the interpretation process, the noti ons of fairness
and good faith that underlie the law of contract again have a role to
play. While a court is not entitled to superimpose on the clearly
expressed intention of the parties its notion of fairness, the position
is different when a contract is am biguous. In such a case the
principle that all contracts are governed by good faith is applied
and the intention of the parties is determined on the basis that they
negotiated with one another in good faith (see eg Trustee, Estate
Cresswell & Durbach v Coetzee 1916 AD 14 at 19: Dharumpal
Transport (Pty) Ltd v Dharumpal 1956 (1) SA 700 (A) 706-707;
Mittermeier v Skema Engineering (Pty) Ltd 1984 (1) SA 121 (A)
128A-C; Joosub Investments (Pty) Ltd v Maritime & General
Insurance Co Ltd 1990 (3) SA 373 (C) 383E-F . See also Farlam
and Hathaway, Law of Contract, 3 ed (by Lubbe and Murray) 468,
para 6).
[33] Having regard to the provisions of clause 3.2 it is clear that it
confers the right upon a party (in this instance, Safcol) who found it
29
impossible to come to an agreement on revision of price, firstly, to
approach the Minister as a prelim inary step to arbitration and,
secondly, to refer the matter to arbitration if the Minister should
express the opinion that no agreement could be reached. Although
the clause does not expressly impose any duty or obligation on the
other party (York) the corollary of the rights conferred upon Safcol
is an obligation or duty on the part of York not to frustrate Safcol in
the exercise of these rights. Th is follows logically from the
structure of the rights and duties the parties themselves created.
[34] However, had there been any interpretative ambiguity as to
the existence of such a duty or obli gation on the part of York, it is
removed by considerations of reasonableness, fairness and good
faith. In other words, even where the logical consequences of the
rights and duties may not necessi tate such an inference, the
underlying principles of good faith requires its importation.
[35] The next question is whether it can be said that York failed to
comply with its obligation not to frustrate or delay Safcol in the
exercise of its rights under clause 3.2. I believe that the answer to
this question must be in the affirmative. From the background facts
it is clear, in my view, that York had no intention of agreeing
revised prices with Safcol. It t herefore knew a ll along that no
30
agreement would be reache d in this regard. It also knew that in
these circumstances Safcol was ent itled to refer the matter to the
Minister and to obtain the Minist er's opinion that agreement could
not be reached so as to enable it to proceed to arbitration.
Nevertheless, York did its utmost over a period of several years to
prevent or delay Safcol from obtaining such an opinion with the
obvious intent to avoid arbitration. It did so by pretending that it
was prepared to negotiate; by conte nding that it was possible to
reach agreement whereas obviously it was not; by contending,
contrary to the whole schem e of the agreements revealed by
clauses 3.2 and 4.2, that revi sed prices could not be negotiated
before the terms of the long t erm contracts ha d been settled; by
raising contentions which can only be described as absurd, as for
example, that a reference to th e Minister was inappropriate where
the parties were in agreement on th e principle that there should be
price revision, thus creating an obvious deadlock; by insisting upon
the Minister's involvement only to raise the objection subsequently
that Safcol had approached the wrong Minister and that the
Minister should recuse himself on grounds of bias.
[36] Essentially the same consider ations apply, in my view, with
reference to clause 4.4. This claus e confers the right on Safcol to
31
approach the Minister to express t he opinion contemplated as a
preliminary step to cancellation of the contract by York. Again, the
corollary of this right is an obl igation on the part of York not to
frustrate this right. A gain York acted in breac h of this obligation by
seeking to inhibit or intimidate the Minister through thinly veiled
threats of court proceedings if t he Minister should decide to get
involved.
[37] York's further contention was th at even if it is found to have
failed to comply with its contra ctual obligations, Safcol was not
entitled to resort to cancellation on the basis of breach, because
Safcol failed to comply with the procedural req uirements for
cancellation. These procedural requirements are stipulated in
clause 28.1 of the contract. It required of Safcol, before it was
entitled to terminate the contract on the grounds of breach by York,
to give written notice to York to remedy such breach as well as a
reasonable opportunity to do so. It is common cause that no such
notice was given to York prior to Safcol's letter of cancellation. The
answer to York's argument is in my view to be found in those
cases where it was held that th e requirement of notice prior to
cancellation contemplated in clause 28.1 of the contracts does not
apply where the breach of contract complained of was in the form
32
of anticipatory breach or repudiation (see eg Taggart v Green 1991
(4) SA 121 (W) 124D-126I; Metalmil (Pty) Ltd v AECI Explosives
and Chemicals Limited 1994 (3) SA 673 (A) 683G-I).
[38] Repudiation occurs where one party, without lawful grounds,
indicates to the other party, by word or conduct, a deliberate and
unequivocal intention that all or so me of the obligations arising
from the contract will not be perfor med in accordance with its true
tenor (see eg Datacolor International (Pty ) Ltd v Intamarket (Pty)
Ltd 2001 (2) SA 284 (SCA) 294H-I; Metalmil (Pty) Ltd v AECI
Explosives and Chemicals Ltd supra at 684-685B). It is clear, I
think, that in particular circ umstances conduct of a contracting
party can constitute both a breach of contract in the form of
malperformance and a repudiation. A fa ir example of this is to be
found in the present case. York's conduct amounted to breach in
the form of failure to comply with his obligations in terms of clause
3.2 and 4.4. However, at the same time it also amounted to a
repudiation in that York conveyed th e clear indication to Safcol of
its intention not to comply with those obligations in the future
either. In these circumstances, th e contracts were in my view duly
terminated when Safcol accepted Y ork's repudiation in its letter of
10 November 1998.
33
[39] For these reasons, the appeal is upheld with costs, including
the costs of two counsel, and the following order is substituted for
that of the court a quo:
'(a) An order is issued declaring that the plaintiff validly cancelled
the two contracts between the parties, referred to as the
Swartfontein agreement and the Witklip agreement, on 10
November 1998.
(b) The defendant is ordered to pay the plaintiff's costs,
including the costs of two counsel.'
……………….
F D J BRAND
JUDGE OF APPEAL
Concur:
Streicher JA
Cameron JA
Jafta AJA
Patel AJA