About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Supreme Court of Appeal
SAFLII
>>
Databases
>>
South Africa: Supreme Court of Appeal
>>
2019
>>
[2019] ZASCA 106
|
|
Innovent Rental & Asset Management Solutions (Pty) Ltd v Transnet SOC Ltd (917/2018) [2019] ZASCA 106 (5 September 2019)
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 917/2018
In the matter between:
INNOVENT RENTAL & ASSET
MANAGEMENT
SOLUTIONS (PTY) LTD
APPELLANT
and
TRANSNET
SOC
LTD
RESPONDENT
Neutral citation:
Innovent
Rental & Asset Management Solutions (Pty) Ltd v Transnet SOC Ltd
(917/2018)
[2019] ZASCA 106
(5
September 2019)
Coram:
WALLIS, MBHA, ZONDI, VAN DER MERWE and MBATHA JJA
Heard
:
29 August 2019
Delivered
:
5 September 2019
Summary:
Master rental agreement –
termination by effluxion of time – obligations of lessee in
regard to return of equipment
– meaning of ‘decommissioned’
in rental agreement.
ORDER
On
appeal from:
Gauteng Division of the
High Court, Johannesburg (Nicholls J, Moshidi and Coppin JJ
concurring, sitting as court of appeal):
The appeal is dismissed with costs, including the costs of two
counsel.
JUDGMENT
Wallis
JA (Mbha, Zondi, Van der Merwe and Mbatha JJA concurring)
[1]
The
appellant, Innovent Rental & Asset Management Solutions (Pty) Ltd
(Innovent), finances the acquisition and leasing of equipment.
On 17
February 2005 it concluded a Master Rental Agreement with the
respondent, Transnet SOC Ltd (Transnet),
[1]
under which it would acquire equipment in accordance with the
specifications of Transnet and lease that equipment to Transnet in
accordance with the terms set out in the rental schedule to the
Master Rental Agreement. The agreement was subsequently revised
when
the first tranche of equipment was acquired and leased to Transnet.
Subsequently five rental schedules were concluded in relation
to
additional equipment. All of those agreements have come to an end.
Some of the equipment has been returned and the present dispute
arises from the condition in which it was returned. Compensation has
been agreed in respect of equipment not returned.
[2]
The dispute revolved around the condition
of the equipment that was returned and the provisions of the clauses
of the Master Rental
Agreement dealing with the return of equipment.
The relevant clauses read as follows:
‘
11.1
User shall, on termination of this agreement, return the equipment in
good working order and condition, fair wear and tear
excluded,
together with all applicable documents, licences and insurance
policies to Hirer’s nominated address at User’s
cost and
expense. Equipment must be securely packed and crated in a manner
that protects the equipment against damage during transportation.
11.2 The equipment
shall not be regarded as returned unless (where applicable) it is
decommissioned in accordance with the original
manufacturer’s
specifications and appropriate certificates have been supplied.
11.3
If it is not possible for User to return the equipment to Hirer in
accordance with the provisions of this agreement then the
User must
immediately at the expiration or earlier termination of the renting
of the equipment in terms of this agreement and at
the User’s
cost deliver to Hirer replacement equipment approved by Hirer and of
a similar nature to the equipment, provided
that Hirer may in its
sole discretion accept payment of an amount equal to the Residual
Value of the equipment instead of delivery
of such replacement
equipment. …’
[2]
[3]
Innovent
contended in the high court that the equipment had not been returned
in good order and condition, and that in terms of
clause 11.2 it
was to be regarded as not having been returned, because it had not
been decommissioned in accordance with the
manufacturer’s
specification and was not accompanied by appropriate certificates.
Ke
ightley J sitting in the
Gauteng Division of the High Court, Johannesburg, upheld the latter
claim. She refused leave to appeal,
but this court granted leave to
appeal to the full court. In a judgment by Nicholls J (Moshidi J and
Coppin J concurring), it upheld
the appeal and substituted an order
of absolution from the instance with costs for the order of the high
court. This further appeal
is with the special leave of this court.
[4]
The only issue is whether, on the proper
interpretation of clause 11.2 of the Master Rental Agreement, the
equipment had to be decommissioned
in accordance with specifications
prescribed by the original manufacturer. Innovent contended that
Transnet was so obliged and
that its failure to do so meant that the
equipment should be treated as not having been returned, affording it
the right to claim
monetary compensation in accordance with clause
11.3. It was common cause that the original manufacturer had not
prescribed any
special procedures for decommissioning the equipment
and, accordingly, that nothing had been done in this regard when the
equipment
was returned. Transnet for its part contended that, in the
absence of any such specifications from the manufacturer of the
equipment,
no obligations were imposed upon it by clause 11.2.
[5]
It is helpful to start by looking at the
meaning of ‘decommissioned’. In the heads of argument
filed on behalf of Innovent
it was submitted that it meant simply
‘uninstalled’. In other words, it conveyed only that the
equipment should be
removed from the place where it was installed and
returned, without there being any special procedures or processes to
be followed
in removing it. It was submitted that this was the
ordinary meaning of the word.
[6]
That
approach was not entirely in accordance with any of the dictionaries
I have consulted. According to the Shorter Oxford English
Dictionary
[3]
the word
‘decommissioned’ means:
‘
Take
(a ship, installation etc) out of service.’
The
Collins English Dictionary
[4]
is
to similar effect:
‘
To
dismantle or remove from service (a nuclear reactor, weapon, ship,
etc which is no longer required).’
The
Business Dictionary
[5]
gives the
following definition for ‘decommissioning’:
‘
Planned
shut-down or removal of a building, equipment, plant, etc from
operational usage.’
[7]
In
the context of the buildings, plant, factories, ships or armaments
referred to in these definitions, one can readily understand
that the
process of taking them out of active service would be technical and
that the original manufacturer might specify how that
should be done.
In many instances this might also be necessary because the
decommissioning would be subject to regulatory statutes
or
regulations, particularly of an environmental character. Thus, in the
case of a nuclear reactor there might be a need to specify
how to
deal with radioactive material. In the case of mining equipment, as
well as the mine itself, it would need to be decommissioned
in such a
way as, for instance, to prevent pollution and ensure that the mining
activity would not lead to subsidence or the catastrophic
appearance
of sinkholes. In the case of armaments, the need for detailed
specifications on the disposal of explosives is apparent.
In
instances such as those the manufacturer might well think it
appropriate to provide decommissioning specifications at the outset.
[6]
[8]
However, not every piece of plant or
technical equipment would require of the manufacturer to specify at
the time of manufacture
how the process of taking it out of service
should be undertaken. Much plant and equipment can be stripped down
and removed quite
simply. Often equipment is simply scrapped when its
useful life ends and it matters not how it is dismantled and sent
away for
scrapping. Many buildings, including factories and parts of
power stations, are demolished with brute force and fairly simple
equipment
such as sledgehammers or larger equipment such as wrecking
balls, bulldozers and front-end loaders. None of this requires
specifications
from the original builder or manufacturer as to the
process of decommissioning.
[9]
Understanding that manufacturers will only
specify conditions for decommissioning in certain instances, explains
why, in clause
11.2, the words ‘(where applicable)’
qualify the circumstances in which compliance with such
specifications and furnishing
an appropriate certificate to confirm
such compliance was required of the user of the equipment. It was
only where the original
manufacturer had seen fit to specify the
manner of decommissioning that it was necessary for the user to
ensure that the original
manufacturer’s instructions were
followed.
[10]
Counsel for Innovent submitted that clause
11.2 contained a presumption that in all cases there needed to be
decommissioning in
accordance with the original manufacturer’s
specifications. He sought to overcome the difficulty that it was
common cause
that the original manufacturer had done nothing of the
sort, by taking the court on a tour of the background to the
conclusion
of the Master Rental Agreement. This, so he submitted,
revealed that Transnet, through the various consultants and firms
that it
dealt with in regard to the design, manufacture and
installation of the equipment, was solely responsible for the nature
of that
equipment. Innovent, as the financier of its acquisition, was
entitled in the light of clause 11.2 to assume that Transnet would
ensure that the manufacturer would specify the requirements for
decommissioning. That it failed to do so could not be laid at
Innovent’s door and meant that Transnet did not comply with its
obligations under clause 11.2.
[11]
The submission is based on a fundamental
fallacy in the interpretation of contracts – one that the
courts have time and again
rejected. The starting point is clause
11.1. Under that clause Transnet was obliged to restore the equipment
to Innovent on termination
of the Master Rental Agreement in good
order and condition, fair wear and tear excepted. If it did not do
so, then Innovent were
entitled to be compensated therefor in terms
of clause 11.3. Similarly, if it returned the equipment, but it was
not in good order
and condition, Innovent were entitled to
compensation under clause 11.3. In both instances the compensation
could take the form
of either replacement equipment or money.
[12]
Clause 11.2 dealt with the different
situation where the equipment had been returned in good order and
condition, fair wear and
tear excepted, but was equipment that, in
addition to the conventional documents, licences and insurance
policies referred to in
clause 11.1, had to be decommissioned in
accordance with specifications prescribed by the original
manufacturer. Such equipment
‘shall not be regarded as
returned’ unless those specifications were complied with and
compliance had been appropriately
certified. In other words, even
though that equipment was returned in good order and condition, it
would not be accepted as having
been returned at all, unless there
was compliance with the original manufacturer’s decommissioning
specifications and that
had been certified.
[13]
The
fallacy in counsel’s argument lay in describing clause 11.2
as a presumption, and treating it as an independent
enacting
provision when in substance it is a proviso to clause 11.1. The
correct approach was set out as follows in
Mphosi
:
[7]
‘
According
to Craies
Statute Law
7th
ed at 218 -
“
the
effect of an excepting or qualifying proviso, according to the
ordinary rules of construction, is to except out of the preceding
portion of the enactment, or to qualify something enacted therein,
which but for the proviso would be within it; and such proviso
cannot
be construed as enlarging the scope of an enactment when it can be
fairly and properly construed without attributing to
it that effect”.
In
R
v Dibdin
[1910] P 57
(CA), Lord Fletcher Moulton at 125 in
the Court of Appeal said:
"The
fallacy of the proposed method of interpretation (ie to treat a
proviso as an independent enacting clause) is not far
to seek. It
sins against the fundamental rule of construction that a proviso must
be considered in relation to the principal matter
to which it stands
as a proviso. It treats it as if it were an independent
enacting clause instead of being dependent
on the main enactment. The
Courts … have frequently pointed out this fallacy, and have
refused to be led astray by arguments
such as those which have been
addressed to us, which depend solely on taking words absolutely in
their strict literal sense, disregarding
the fundamental
consideration that they appear in a proviso.”’
[14]
Counsel submitted that this construction
was not commercially sensible, because in those circumstances
Innovent, as the financier,
would have no control over whether there
was compliance with a formal decommissioning process laid down by the
original manufacturer
of the equipment. When, as occurred here, the
equipment in final form as installed was purpose-built to fit the
client’s
needs, in accordance with specifications it had
devised, it would be able to circumvent the potential exclusion in
clause 11.2
by purposely ensuring that the original manufacturer did
not specify any requirements for decommissioning.
[15]
There are two answers to this. The
first is that there was no evidence that Transnet was aware of the
provisions of clause 11.2
in a standard form contract at the time it
was working with its advisers on the design and manufacture of the
equipment, or thought
that it was under any obligation to obtain
decommissioning specifications from the original manufacturer. No
such obligation was
specified in that clause or in clause 3.2, which
stated that Transnet specially selected the equipment. The second is
that if it
was important to Innovent in every case, bearing in mind
that it was accepted that the Master Rental Agreement was a standard
form
agreement that it used in relation to transactions of this type,
it was open to it to include appropriate stipulations in its
agreement
to secure that situation, or at least make enquiries and
demand production of the specifications before committing itself to
providing
the sought-for finance.
[16]
Ms Coetzee explained in her
evidence that Innovent’s business model relied on its receiving
only modest rentals during the
subsistence of the agreement,
sufficient to cover the cost of its acquisition, and securing a
profit at the end of the agreement
by reselling, or again leasing,
the equipment. However, far from that assisting Innovent, it
demonstrated that the interpretation
of clauses 11.1 and 11.2 set out
above was correct. (I mention this evidence only to demonstrate that
it provides a commercial
background that is consistent with my
construction of the clauses.) The business model provides the
explanation for Innovent requiring
that the equipment be returned in
good order and condition, fair wear and tear excepted, together with
all applicable documents
– operating manuals would be an
example – licences and insurance policies. Furthermore the
equipment had to be securely
packed and crated in a manner that
protected it against damage during transportation. The background of
the business model shows
clearly that clause 11.1 was designed to
facilitate Innovent earning its profit by reselling, or re-letting,
the equipment on the
second-hand market.
[17]
Clause 11.2 fits neatly into that
structure. If the manufacturer had specified decommissioning in a
particular manner and after
decommissioning the equipment was to be
sold, a prospective purchaser would want to know that decommissioning
had been undertaken
as specified. The position would be no different
from that of the purchaser of a second-hand motor vehicle wishing to
be satisfied
that the vehicle had been maintained in accordance with
the manufacturer’s service manual.
[18]
For those reasons Innovent’s
contentions concerning the proper construction of clause 11.2 cannot
be accepted. The full court
was correct in its conclusion and in
upholding Transnet’s appeal. I have my doubts as to the
correctness of its substituting
an order for absolution from the
instance for the order granted by the trial court, but there was no
cross-appeal, so that order
must stand.
[19]
In response to a question posed by a member
of the Bench, counsel sought to resurrect the alternative claim based
on the proposition
that the equipment was not in fact returned in
good working order, fair wear and tear excepted. In my view it was
not open to him
to do so. Keightley J made no factual findings in
respect of that claim and, on appeal to the full court, the only
issues argued
were the proper interpretation of clause 11.2 and a
question of prescription that was abandoned before us. Counsel
accepted that
special leave was only sought and granted on the basis
that those two issues were the live issues in the case. There is a
limited
power, where no prejudice would result, to permit a legal
point, even one deliberately abandoned, to be revived on appeal.
However,
this is not a legal point, but a factual issue on which we
have received no submissions and have no findings from the trial
court.
The evidence of one of Transnet’s witnesses, the person
responsible for the design, installation, maintenance and removal
of
the equipment, was not properly recorded and was reconstructed from
counsel’s notes. On grounds of fairness alone it would
not be
open to us to make the requisite factual findings suggested by
counsel. There were disputes of fact and we would not be
in a
position to resolve them fairly.
[20]
The following order is made:
The appeal is
dismissed with costs, including the costs of two counsel.
M J D WALLIS
JUDGE OF APPEAL
Appearances ,
For
appellant: A Joubert SC (with him
G P van Rhyn.) Heads of argument prepared by A R G Mundell
SC and G P
van Rhyn.
Instructed
by: Otto Krause Inc, Roodepoort,
Adrie Hechter Attorneys, Bloemfontein
For
respondent: R Bedresi SC (with him A J
Lapan)
Instructed
by: Poswa Incorporated,
Sandton
Phatshoane Henney Attorneys, Bloemfontein.
[1]
Then known as Transnet Limited t/a Transtel.
[2]
‘User’ refers to Transnet and ‘Hirer’
to Innovent.
[3]
Shorter Oxford English Dictionary
6
h
ed (2007).
[4]
Collins English Dictionary
12 ed
(2014).
[5]
Business Dictionary
www.businessdictionary.com\definition\decommissioning.html
(accessed 29 August 2019).
[6]
Merchant shipping that is EU flagged or visiting
European ports must have and carry an Inventory of Hazardous
Materials in terms
of the EU Ship Recycling Regulations 2013.
European flagged vessels may only be decommissioned at shipyards in
the EU that are
certified as green and in accordance with a ship
recycling plan that has been approved in advance of the commencement
of decommissioning.
The regulations came into full force on 31
December 2018.
[7]
Mphosi v Central Board for Co-Operative
Insurance
1974 (4) SA 633
(A) at
645C-F.