THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case number : 469/03
Reportable
In the matter between :
A D PELLOW NO
S WILLIAMS NO APPELLANTS
and
CLUB REFRIGERATION CC RESPONDENT
CORAM : SCOTT, MTHIYANE, CLOETE JJA,
ERASMUS, JAFTA AJJA
HEARD : 16 SEPTEMBER 2004
DELIVERED : 29 SEPTEMBER 2004
Summary: The effect of a reservation of ownership clause in a contract of locatio
conductio operis (lump sum building contract) in favour of the building
contractor, where insolvency of the employer has supervened before the
works have been completed, discussed.
_________________________________________________________
JUDGMENT
CLOETE JA/
2
CLOETE JA:
[1] At issue in this appeal is the effect of a reservation of ownership
clause in a contract of locatio conductio operis , a lump sum building
contract, in favour of the buildin g contractor, where insolvency of the
employer has supervened before the works have been completed (and no
question of accessio arises). Rival contentions were advanced on behalf
of the building contractor, Club Refr igeration CC (‘Club Refrigeration’),
who was the successful applicant in the court a quo and is the respondent
on appeal; and on behalf of the liquidators of the employer, Fisher Foods
SA (Pty) Ltd (‘Fisher Foods’). The liquidators were cited jointly in the court
a quo as the first respondent and are the appellants in the appeal.
Because of the arguments advanced before this court, the facts will have
to be set out in some detail.
[2] Fisher Foods intended constructi ng a factory in Kempton Park. To
that end, it called for tenders. Club Refrigerat ion CC submitted such a
tender dated 5 October 2001. The tender was for the construction of the
factory and the supply of certain items of equipment which formed part of
the factory but which remained mov able. It contained the following
clauses which are relevant for present purposes:
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‘PRICES:
Fixed price for all items as specified R10 991 000.00.
PAYMENT TERMS
Interim progress payments during the site work schedule to up to 90% of the contract
price
10% on completion and before commercial use.
ACCEPTANCE
The price is fixed for a period of 28 days from the date of quotation.
All items of equipment remain the property of Club Refrigeration CC until they are paid
for in full.
CONTRACT TERMS
As per JBCC principle building agreement, code 2101, July 2000.’
The reference to the ‘JBCC principle building agreement’ was to the July
2000 version of the Principal Build ing Agreement prepared by the Joint
Building Contracts Committee Inc.
[3] Fisher Foods responded to the t ender by sending a document to the
applicant dated 15 November 2001. T he document was entitled ‘Order’
and it contained inter alia the following provisions:
‘This order is to confirm our acceptance of the Fixed Price Tender dated 15 10 2001…
A deposit of thirty per cent of the ag reed price (R3,297,300.00, Three million Two
Hundred and Ninety Seven Thousand Three Hundred Rand) will be paid on receipt of
your confirmation of the fixed price and is also subject to the following:
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• Receipt of an agreed and signed copy of the JB CC building agreement code
2101 published July 2000 and the relevant Bank guarantee pertaining to this
agreement. All further pa yments will be in accor dance with the JCBB building
agreement…’
Club Refrigeration thereafter subm itted a signed copy of the JBCC
agreement to Fisher Foods.
[4] The building works undertaken by Fisher Foods were financed by
the Industrial Development Corporati on of South Africa Limited (‘the
IDC’). The IDC was joined as the second respondent in the court a quo. It
registered a general notarial bond over the movable assets of Fisher
Foods to secure the lo an and subsequently perf ected the bond shortly
before Fisher Foods was liquidated.
[5] The project was completed by Club Refrigeration, who submitted a
claim to Fisher Foods for the outstanding amount payable in terms of the
contract. Fisher Foods was liquidated and the liquidators were appointed
before any payment was made by Fisher Foods in respect of the claim.
The claim comprised composite amounts for goods and labour.
[6] The present matter concerns movable goods included in the claim.
Club Refrigeration and the IDC made competing claims to these goods. It
is important to emphasize, for reas ons which will become apparent, that
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Club Refrigeration’s claim was based on its ownership of the goods; it was
not for payment of the claim in terms of the contract. The liquidators at no
stage contended that the goods had become the property of Fisher Foods
by accessio and expressly admitted that they were movables. A third
party, Afgri Operations Limited, wished to purchase the goods. Ultimately,
a tripartite contract was concluded between Club Refrigeration, the
liquidators and the IDC relating to the disposal of the goods (referred to as
the ‘sale assets’) which contained the following relevant terms:
‘2. RECORDAL
2.1 The assets referred to in annex “A” hereto (“the sale assets”) are in the
possession of the joint provisional liquidators at the premises of FISHER
FOODS SOUTH AFRICA (P TY) LIMITED (in liquida tion) at 17 POMONA
ROAD, AVIATION PARK, KEMPTON PARK.
2.2 A general notarial covering bond wa s registered by FISHER FOODS SOUTH
AFRICA (PTY) LIMITED (“F isher Foods”) in favour of the IDC over the
movable assets of Fisher Foods under bond number BN45130/2002 (“the
GNB”).
2.3 IDC contends that:
2.3.1 the sale asse ts fall under the GNB;
2.3.2 it has perfected its security in terms of the GNB.
2.4 Club Refrigeration contends that it has reserved rights of ownership in the
sale assets pursuant to the sale thereof by Club Refrigeration to Fisher
Foods.
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2.5 AFGRI OPERATIONS LIMITED (“Afgri”) wishes to purchase the sale assets
from the joint provisional liquidators for a purchase price of R1,280,000.00
(one million two h undred and eighty thousand rands) plus VAT (“the purchase
price”).
3. THE SALE ASSETS
3.1 IDC and Club Refr igeration hereby agree that the joint prov isional liquidators
are entitled to sell the sale assets to Afgri for the purchase price which shall
be held by the joint provisional liquida tors in an interest bearing account and
paid to IDC and/or Club Refrigeration depending on which of them is found to
be entitled thereto (whet her in whole or in part) having regard to the
contentions of each of them respective ly as set out in 2.3 and 2.4 above.
3.2 The determination as to which of IDC or Club Refrigeration is entitled to the
whole or portion of the purchase price shall be de termined by a court of
competent jurisdiction unless the method of determination is otherwise agreed
in writing by IDC and Club Refrigeration.
…
3.5 The joint provisional liquidators give no acknowledgement or undertaking to
either IDC or Club Refrigeration with regard to their claims as set out in 2.3
and 2.4 above and will deal with the proceeds of the purchase price in terms
of the liquidation and distribution a ccount relating to Fisher Foods South
Africa (Pty) Limited (in liquidation) in due course, unless otherwise determined
in accordance with clause 3.2 above.’
[7] The goods were then sold to Afgri for R1,28 million. Club
Refrigeration commenced motion proceedings in the court a quo in which
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it claimed a declaratory order that on the date of the commencement of
the winding up of Fisher Foods, it was the owner of the goods; and it
further sought an order that the liquidators be directed to pay the proceeds
of the sale of the goods, i.e. R1, 28 million, to it. The basis of Club
Refrigeration’s claim as set out in th e founding affidavit was that it had
sold the goods to Fisher Foods in terms of a contract in which it reserved
ownership in them until paid. The li quidators opposed the application on
the basis that there was no reservation of ownership clause but that if
there were, s 84(1) of the Insolvency Act had the effect of transferring the
ownership in the goods to them, subjec t to a hypothec in favour of Club
Refrigeration. The IDC did not participate in the proceedings. In argument
before the court a quo, counsel for Club Refrigeration changed tack and
submitted that the goods had not been sold to Fisher Foods, but had been
supplied in terms of a contract of locatio conductio operis; and that s 84(1)
was accordingly not ap plicable. The court a quo (Botha J) granted the
relief sought by Club Refrigeration a nd the present appeal is with the
leave of that court.
[8] Before dealing with the four s ubmissions made by counsel for the
liquidators, it would be desirable to record that in argument before this
court it was common cause that the contract between the appellant and
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Fisher Foods was indeed a contract of locatio conductio operis, and that s
84(1) of the Insolvency Act ─ limited, as it is, to instalment sale
transactions ─ was accordingly not applicable.
[9] The first submission made by counsel for the liquidators was that
the contract between Club Refrigeration and Fisher Foods contained no
reservation of ownership clause inasmu ch as, said counsel, the order
placed by Fisher Foods constituted a counter offer which was accepted by
Club Refrigeration. That meant, said counsel, that the terms of the JBCC
agreement alone governed the contract between parties. Counsel relied
in particular on clause 1.8 of the JBCC agreement, which reads:
‘This agreement is the entire contract between the parties regarding the matters
addressed in this agreement. No representations, terms, conditions or warranties not
contained in this agreement shall be bi nding on the parties. No agreement or
addendum varying, adding to, deleting or cancelling this agreement shall be effective
unless reduced to writing and signed by the parties.’
[10] The argument is untenable. The tender was incorporated in the
JBCC agreement signed on behalf of Cl ub Refrigeration and sent to
Fisher Foods, as required in the ord er placed by Fisher Foods on Club
Refrigeration. Clause 2 of that agreement provides:
‘2.0 OFFER ACCEPTA NCE AND PERFORMANCE
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2.1 The objective of this agreement is t he execution of and payment for the works
for which there has been an offer by t he contractor and an acceptance thereof
by the employer.
2.2 In pursuance of such an objective the parties undertake to carry out
their reciprocal obligations in terms of this agreement.’
‘Agreement’ is defined as meaning ‘this JBCC Principal Building
Agreement and other contract docu ments which together form the
contract between the employer and contractor’; and ‘contract documents’
are, in turn, defined as meaning ‘this document, the contract drawings, the
… lump sum document and such other do cuments as are identified in the
schedule’. In the schedule, under the heading ‘Contract documents
marked and annexed hereto’ the word ‘yes’ has been filled in opposite
‘lump sum document’. The relevant part of the definition of ‘lump sum
document’ in clause 1 is ‘the document providing the lump sum amount
priced by the contractor to reflect the contract sum’. That document must
have been Club Refrigeration’s t ender, as counsel representing the
liquidators was constrained to concede.
[11] The second argument advanced by counsel representing the
liquidators was that because the contract between Club Refrigeration and
Fisher Foods was a lump sum contrac t, unless there is a mechanism for
ascertaining which portion of the co ntract price pertained to particular
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movable assets to be delivered in t erms of the agreement, it will be
impossible to determine whether paym ent for individual items had been
made; and there is no such mechanism. In my view, there is.
[12] The order placed by Fisher F oods made specific provision for
payment in terms of the JBCC agreement. Clause 31 of the JBCC
agreement provides for interim payment s to be made to the contractor.
Clause 31.4 provides that the valu e certified in an interim payment
certificate shall separately include:
’31.4.1 A reasonable estimate of the value of the work executed …
31.4.2 A reasonable estima te of the value of materi als and goods in terms of
3 1 . 6 … ’
(It is not necessary for present purposes to have regard to clause 31.6 or
to consider the submission by counse l representing the liquidators that
the court a quo was incorrect in considerin g that the movable goods at
issue in these proceedings would fall to be certified under clause 31.4.2.)
Clause 31.9 provides t hat the employer shall pay to the contractor the
amount certified within seven calendar days of the date of issue of the
payment certificate. Clause 31.7 prov ides that materials and goods paid
for in terms of clause 31.9 shall become the property of the employer. This
is the mechanism by which it can be determined which part of the price
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has been allocated for specific goods and whether particular goods have
been paid for. Clause 31.7 dovetails easily with the reservation of
ownership provisions in Club Refrige ration’s tender: The latter provides
that until goods are paid for, ownership remains vested in Club
Refrigeration; and the former provides that once payment has been made
for goods (whether they have been in corporated in the works or not and
therefore irrespective of whether accessio applies), ownership in them will
pass to the employer i.e. Fisher Foods.
[13] The liquidators have at no stage suggested that Club Refrigeration
has been paid for the goods. They bear the onus of proof on this point.
The specific allegation in the founding affidavit that Club Refrigeration has
not been paid, has not been contr adicted. Furthermore, the tripartite
agreement can only have been entered into on the basis that Club
Refrigeration had not been paid for the goods in question; for otherwise
the provisions of Clause 31.7 of the JBCC agreement would have
provided a complete answer to Club Re frigeration’s claim that it was the
owner of the goods.
[14] The third submission by couns el for the liquidators was that
because the value of the goods wa s not specified in any payment
certificate, whether interim or final, Club Refrigeration was not entitled to
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payment in respect of those goods in terms of the JBCC agreement
forming part of its contract with Fish er Foods. But that is irrelevant. Club
Refrigeration does not seek payment for the goods in terms of the JBCC
agreement. It seeks to enforce its right to payment of the proceeds of the
sale of the goods in terms of the tripartite agreement because it was the
owner of the goods when insolvency supervened.
[15] Counsel representing the liquidators submitted that the tripartite
agreement does not mean that if Club Refrigeration succeeded in proving
that its contract with Fisher Foods contained a reservation of ownership
clause in its favour, it would be entitled to the proceeds of the sale of the
goods. In my view, that is precisel y what the tripartite agreement means.
In terms of clause 3.1, the liquidators undertook to pay the proceeds of the
sale of the goods to IDC and/or Club Refrigeration ‘depending on which of
them is found to be entitled thereto (whether in whole or in part) having
regard to the contentions of each of them’. The contention of Club
Refrigeration set out in clause 2.4 wa s that it had reserved the right of
ownership in the goods. It is true that Club Refrigeration contended that it
had sold the goods to Fisher Foods, whereas it had not; but that makes no
difference. The essence of Club Refrigeration’s claim was that it had
retained ownership of the goods because of its contract with Fisher Foods.
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In clause 3.5, the liquidators undertoo k to deal with the proceeds of the
purchase price in terms of the liquidation and distribution account in due
course ‘unless otherwise determi ned in accordance with clause 3.2’.
Clause 3.2 envisaged a determination between the competing claims of
the IDC and Club Refrigeration by a court. The determination has been
made in favour of Club Refrigeration and it will be confirmed on appeal.
[16] Counsel representing the liquidator s, in submitting that the tripartite
agreement should not be given its plain meaning, pointed out that when
liquidation supervened the contract between Club Refrigeration and
Fisher Foods was executory or incomplete; and submitted that it cannot
be established whether the liquidators decided not to carry on with the
execution of the contract, and thereby repudiated it, much less whether
Club Refrigeration accepted any su ch repudiation and cancelled the
contract. But all of this is irrelevant. Club Refrigeration’s claim to the
proceeds of the sale of the goods is based on the fact that it owned them.
It has made no claim in these proceedings to participate in the proceeds of
the liquidation of Fisher Foods. In entering into the tripartite agreement the
liquidators correctly recognised that if Club Refrigeration was the owner of
the goods, the proceeds of the sale of the goods could never form part of
the assets of Fisher Foods and woul d have to be paid over to Club
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Refrigeration.
[17] To sum up: Club Refrigeratio n reserved ownership in the goods
supplied by it to Fisher Foods until it was paid. The agreement between
Club Refrigeration and Fisher Foods was a lump sum agreement but
because of the interim certificate provisions it contained, it can be
determined that Club Refrigeration was not paid for certain movable
goods supplied by it. Club Refrigerati on agreed with the liquidators of
Fisher Foods that these goods coul d be sold to a third party and the
liquidators undertook that if Club Refrigeration proved in a court of law that
it had been the owner of the goods, t hey would pay the proceeds of the
sale to Club Refrigeration. Club Re frigeration has proved this and is
accordingly entitled to payment.
[18] The appeal is dismissed, with costs.
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T D CLOETE
JUDGE OF APPEAL
Concur: Scott JA
Mthiyane JA
Erasmus AJA
Jafta AJA