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Dune Consulting (Pty) Ltd v Ongopolo Mining Ltd ((P) 3549/2008) [2011] NAHC 272 (21 September 2011)

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IN THE HIGH COURT OF NAMIBIA


CASE NO: (P) 3549/2008



In the matter between:



DUNE CONSULTING (PTY) LTD

PLAINTIFF


and


ONGOPOLO MINING LIMITED


DEFENDANT


CORAM: GEIER, AJ



Heard: 23 – 27 July 2010

24 January 2011

Delivered: 21 September 2011

_______________________________________________________________


JUDGMENT:


GEIER, AJ.: [1] On 15 November 2007, the defendant a mining company, enlisted the services of a management consulting company, the plaintiff, for purposes of improving its productivity.


[2] Two written agreements, the first being the so called ‘Quantum Project Agreement’ and the second being the so called ‘Supply Chain Agreement’, were concluded between the parties.


[3] The consulting services, in terms of both the aforesaid agreements, were performed during the period November 2007 until July 2008.


[4] In respect of both agreements a written addendum was concluded on 30 January 2008.


[5] On 15 July 2008 the defendant, by way of a letter, notified the plaintiff that the defendant had elected to terminate both agreements effective of 25 July 2008. This ‘cancellation’ is disputed.


[6] The plaintiff then, by way of action claimed the sum of N$ 4,412,801.00 on the strength of the ‘Quantum Project Agreement’ and N$ 240,00.00 in respect of the ‘Supply Chain Agreement’ . This action was defended.


[7] Although on the pleadings a host of different issues were initially raised, these issues were significantly narrowed at the argument stage through a number of material concessions made on the part of the defendant and ultimately by the agreement reached between the parties that, for purposes of determining this matter, the contract, annexed as “A” to the particulars of claim, should now be to be regarded as the sole memorial of the agreement concluded between the parties. The focus of the entire case, (save for the issue of cancellation), thus shifted towards the interpretation of that agreement only and the cardinal question, whether or not the plaintiff, in terms thereof, would ultimately be entitled to payment of the claimed amounts.


[8] The relied upon contacts were pleaded on behalf of plaintiff as follows :


3. THE QUANTUM PROJECT:


3.1 On or about 15 November 2007 and at Windhoek, the plaintiff, (represented by Mr Bowes) and the defendant (represented by Mr Garbers) entered into a written agreement, a true copy of which is annexed hereto as annexure “A”.


3.2 The salient express, alternatively tacit, further alternatively implied terms thereof were :



3.2.1 The plaintiff undertook to render management consulting services to the defendant. In particular, the Plaintiff would render such services using the so-called “quantum methodology”. The object of the Quantum method is to bring about a sustainable increase in productivity of the defendant’s operations;


3.2.2 The plaintiff would execute the Quantum project over the period 12 November 2007 to 12 December 2008;


3.2.3 In return, the defendant will pay to the plaintiff a basic project fee of R2,730,000.00, which will be invoiced monthly at a fixed rate of R210,000.00 per month and which shall be paid by the defendant within fourteen days from date of invoice;


3.2.4 In addition, the defendant shall pay to the plaintiff a performance bonus based on enhanced productivity, if production targets as set out in Table 3 of annexure “A” hereto are achieved;


3.2.5 The production targets in Table 3 were expressed in both “ore tons” (denoting volumes of copper-bearing ore mined and processed) and also as “Cu metal tons” (denoting volumes of copper concentrate eventually extracted from ore). The method of measure in terms of which the production targets are reached first, shall be applied.

3.3 On or about 30 January 2008 and at Windhoek, the plaintiff (represented by Dr van der Merwe) and the defendant (represented by Mr Clarke) executed a written Addendum to annexure “A”, a true copy of which is annexed hereto as annexure “B”.


3.4 The impact of annexure “B” was to vary annexure “A” by substituting Table 3 in annexure “A”, with Table 3 in annexure “B”, and to substitute Graph 2 in annexure “A” with Graph 3 in annexure “B”. The effect is that bonus payments would thereafter be done with reference to “ore tons”.


3.5 The plaintiff complied with all its obligations in terms of the agreement.


3.6 The defendant breached the terms of annexure “A” as varied by annexure “B”, in that :


3.6.1 the defendant failed to pay the project fee in respect of August 2008 (R210.000.00) despite an invoice having been rendered by the plaintiff on 1 September 2008;


3.6.2 the defendant failed to pay to the plaintiff the production bonus earned in terms of of annexure “A” as varied by annexure “B”, in the total amount of R4,292,801.00. This amount is set out in annexure “C(i) and C(ii), in the Table headed “Bonus calculation summary”;

3.7 In the premises, the defendant is indebted to the plaintiff in terms of the Quantum Project Agreement in the amount of R4,412,801.00, which amount is now due and payable.


4. THE SUPPLY CHAIN AGREEMENT:


4.1 On or about January 2008 and at Windhoek, the plaintiff, (represented by Dr van der Merwe) and the defendant (represented by Mr Clarke) entered into a written agreement, a true copy of which is annexed hereto as annexure “D”.


4.2 In terms of annexure “D” the plaintiff undertook to render to defendant further management consulting services. In particular, by designing and implementing processes, procedures and management control systems to improve the defendant’s supply chain and so to increase profitability.


4.3 The plaintiff undertook to render such services over a period of 24 months starting on 3 March 2008 and ending at the end of February 2010.


4.4 In return, the defendant agreed to pay to plaintiff a basic projrct fee:


4.4.1 for the first year of R3,024,000.00, to be invoiced monthly at a fixed rate of R252,000.00 for 12 months; and


4.4.2 for the second year a fee of R1,260,000.00, to be invoiced at a fixed rate of R105,000.00 per month from March 2009.


4.5 About 30 January 2008 and at Windhoek, the plaintiff (represented by Dr van der Merwe) and the defendant (represented by Mr Clarke) executed a written Addendum to annexure “D”, a true copy of which is annexed hereto as annexure “E”.


4.6 Upon a proper construction, the import of the Addendum (annexure “E”) was to vary annexure “D” by substituting the provisions in respect of the fixed fee for year one, and to amend the performance bonus provisions.


4.7 In terms of annexure “D”, as varied by annexure “E”, the defendant agreed to pay to the plaintiff in respect of the year March 2008 to February 2009 a project fee of R2,880,000.00 to be invoiced monthly at a fixed rate of R240,000.00 for 12 months, payable within 14 days from date of invoice.


4.8 The plaintiff complied with all its obligations in terms of the supply chain agreement.


3.6 The defendant breached the terms of the Supply Chain Project Agreement by failing to pay the amount invoiced at the end of August 2008, being R240,000.00.



[9] Mr. Maritz SC who appeared on behalf of plaintiff submitted that it was common cause that the plaintiff did perform consulting services in terms of both agreements from about November 2007 to July 2008 – that the quality of services rendered by plaintiff was not in question at all – and that the disputes between the parties were about the ‘meaning’ of the agreements themselves.


In this regard it was now common cause that annexure “A” was the sole memorial of the Quantum Project Agreement and that the true agreement was recorded therein.


[10] Only if and to the extent in which the recorded terms may be ambiguous, may the court try to find the intention of the parties outside the document. He referred the court to the case of Worman v Hughes & Others 1948 (3) SA 495 (A) at 505 were Greenberg JA remarked :


It must be borne in mind that, in an action on a contract the rule of interpretation is to ascertain, not what the parties’ intention was, but what the language in the contract means, ie. What their intention was as expressed in the contract. As was said by Solomon J in Van Pletsen v Henning (1913 AD 82 at 89):

The intention of the parties must be gathered from their language, not from what either of them may have had in mind’.”


[11] These submission were made in respect of the interpretation of the applicable clause 4.1 of the Quantum Project Agreement on which the plaintiff’s claim for the payment of the agreed upon production bonus was based, which stated that ‘ … the performance bonuses will be paid when the targets as indicated in table 3 have been achieved (either the Ore tons or the Cu metal tons, whichever is achieved first … ‘. He submitted that the ‘ore tons’ versus ‘cu tons’ issue was absolutely clear. Both are stated as possibilities although of these two methods of calculation, the one with which the milestones are reached first, shall be employed. (This has nothing to do with the time when the quantities of copper will be known).


[12] A ‘ramp up’ of productivity was intended, but in the course thereof the parties anticipated ‘slumps’ in the production - and thus they had agreed to ‘smooth out’ the effects of these anticipated ‘slumps’ by applying the so-called ‘rolling average’.


[13] On the multiple milestones issue the document is equally clear 50% as all bonuses will be paid during the months in which these milestones are reached. It follows that if more than one milestone is reached during a particular month all corresponding bonuses will be earned. To interpret the document in any other way would mean that the plaintiff would actually be encouraged to delay the reaching of milestones (as reaching milestones sooner could lead to a forfeiture of bonuses).


[14] As all milestones were actually achieved within a few months the plaintiff was entitled to full payment. The example he used to underline his argument would be a trip from ‘A’ to ‘B’ for which a person would be paid. Once that trip was completed it would be immaterial for purposes of payment for whether or not such trip had taken ten or five hours to achieve. Ultimately payment would still have become due.


[15] To interpret the contract in any other way would mean that the plaintiff would actually be encouraged to delay the reaching of milestones (as reaching milestones sooner could lead to a forfeiture of a bonus).


[16] Mr. Graves SC, who represented the defendant herein, on the other hand urged the court to adopt a contextual interpretation of the underlying agreement.


[17] He submitted that the evidence had established that the aim of the plaintiff’s quantum methodology was to improve the effectiveness and the productivity of the defendant’s operations to permit the extraction of copper. This evidence ineluctably established the predominant commercial context preceding the contract, against which the contractual relationship between the parties should be viewed: ‘The defendant makes money out of the mining of copper and the contract accordingly had to reflect this commercial imperative’.


[18] In this regard it was submitted further that the plaintiff’s project proposal under the heading ‘Measures for Project Success’ reflects an increase in the production of copper metal from quarter one (March 2008) to the end of quarter four (December 2008). This finds direct expression in Table 1 of annexure “A” to the pleadings and the reference to an increase to a specified tonnage of copper and the maintenance of this tonnage. This is what was referred to in the evidence as “ramping-up” the copper production.


[19] The plaintiff’s project proposal, under the heading ‘Measures for Project Success’ should be considered as an important indicator of how, not only the defendant, but also the plaintiff understood the purpose of the contract that was to be concluded.


[20] Mr. Graves submitted further that a number of features would, in addition, have to be considered in the interpretation of the agreement.


[21] The first feature would be that, on both parties evidence, there is a direct relationship between ore tons and copper metal tons. In this regard he referred to the evidence of Mr. Bowes which was to the effect that annexure “B” constituted a clarification of this contractual term and that the table was included at the request of Mr Garbers in order to clarify the relationship between ore tons and copper metal tons. This would clarify that the ore tons multiplied by the grade, multiplied by the recovery, would give the copper tons as reflected in the table. None of the numbers in the referred to table were actually changed. All that occurred was that the grade and the recovery was included in the table as per annexure “B” to the pleadings.


[22] Mr. Bowes further confirmed the relationship between millfeed tons (ore tons) and copper tons and ultimately the evidence of Mr. Bowes was to the effect that annexure “B” did not substitute either table 3 and graph 2 in annexure “A”. Accordingly no case for the substitution as pleaded had been made out by the plaintiff.


[23] In this regard Mr. Thomson, on behalf of defendant, testified to the same effect stating that table 3 served “to link definitely the ore tons or the millfeed tons with the copper metal and concentrate”.


[24] The second feature pointed out was the anomaly which allegedly arose from the hypothetical situation put to Mr. Bowes in cross examination to the effect that - if it would be assumed - that the defendant had for example achieved 525 tons of copper for December 2007, the plaintiff would only get 50% of bonus number 1. If however the actual ore rolling average for December 2007 was taken, which would be 42 423 tons, this would entitle the plaintiff on this version to boni 1, 2, 3, and 4. As however annexure “B” did not substitute 3 and graph 2 (its purpose being to link the ore tons to the copper tons) the plaintiff’s suggested calculation method would result in an absurdity and anomaly. This anomaly, which would unmistakenly benefit the plaintiff and would be to the detriment of the defendant, could not be explained by Mr. Bowes.


[25] The third feature pointed out by Mr Graves was that there was no evidence that the defendant was aware, prior to April 2008, (bearing in mind that he contract had commenced during November 2007), that the plaintiff had brought it to the defendant’s attention that it (the plaintiff) intended claiming on the basis of ore tons. This was an afterthought.


[26] Finally it was of relevance that the manner in which the copper tonnage was extracted meant that the copper tonnage could never be determined first in time, as:


a) The ore tonnages are established at the Otjihase plant. The copper tonnages are only finally determined after the copper concentrate has been received and analysed at the Tsumeb smelter.


b) A return rendered by the defendant to the Ministry of Mines and Energy’ then reflects the final amount of copper extracted from the ore. This necessarily occurs well after the ore tonnage is determined at the Otjihase Mine.


c) As the contract between the parties must reflect the actual production process (which was conceded by Mr Bowes), the copper metal tons could never be “achieved first in time, rendering this portion of paragraph 4.1 of annexure “A” practically impossible, and legally absurd. The only solution is to read this provision subject to the context, which requires a direct correlation between ore tons and copper tons. The practical effect is to require the bonus to be determined on the basis of copper tons.



[27] In the light of this evidence it was then contended that the context in this matter would operate with sufficient force to justify the Court to interpret the portion of paragraph 4.1 of annexure “A” to the pleadings on the basis that the parties could only have intended that the plaintiff’s bonus should be calculated on the basis of copper metal tons, and not on ore tons as this would cure the absurdity and inconsistency referred to above.”


[28] As the matter now turned on the interpretation of the relied upon Quantum Project agreement ‘the starting point would be ‘the golden rule’ of interpretation, in terms of which the language is to be given its grammatical and ordinary meaning, unless this would result in some absurdity or some repugnancy or inconsistency with the rest of the instrument.’


[29] The court was then referred to the decision of Coopers and Lybrand v Bryant 1995 (3) 761 (A) where the technique of interpretation of contracts, as a consistently adopted by the South African Courts, was conveniently summarised by Joubert JA as follows:


According to the ‘golden rule’ of interpretation the language in the document is to be given its grammatical and ordinary meaning, unless this would result in some absurdity, or some repugnancy or inconsistency with the rest of the instrument...


The mode of construction should never be to interpret the particular word or phrase in isolation (in vacuo) by itself...


The correct approach to the application of the ‘golden rule’ of interpretation after having ascertained the literal meaning of the word or phrase in question is, broadly speaking, to have regard:


  1. to the context in which the word or phrase is used with its interrelation to the contract as a whole, including the nature and purpose of the contract, as stated by Rumpff CJ supra;


  1. to the background circumstances which explain the genesis and purpose of the contract, ie to matters probably present to the minds of the parties when they contracted. ... ;


  1. to apply extrinsic evidence regarding the surrounding circumstances when the language of the document is on the face of it is ambiguous, by considering previous negotiations and correspondence between the parties, subsequent conduct of the parties showing the sense in which they acted on the document, save direct evidence of their own intentions.”1


[30] The court was also referred to what Lord Hoffmann stated in 896 Investors Compensation Scheme LTD. v West Bromwich Building Society [1997] UKHL 28; [1998] 1 W.L.R. 896 (HL)2 :


(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”


[31] It was thus submitted further that context may cast a different light on the interpretation suggested by the ordinary grammatical meaning; this can result in a situation were context operates with force sufficient to override even clear language pointing the other way”3 The grammatical and ordinary meaning is determined according to the standard of the reasonable commercial person and from the point of view of commercial interest :


Sophisticated semantic analysis is not the best way of arriving at an understanding of what the parties mean to achieve … A better way is to look at what, from the point of view of commercial interest, they hope to achieve by the … provision.”4

[32] The importance of context was stressed with reference to the adoption by Nugent JA of Lord Steyn’s aphorism :


“’In law, remarked Lord Steyn in R v Secretary of State for the Home Department, Ex Parte Daly5context is everything’. And so it is when it comes to construing the language used in documents, whether the document be a statute or a contract …”.6 (emphasis added)


[33] Finally it was contended forcefully in this regard by Mr Graves that the ‘contextual interpretation takes account of both the context within the contractual document, and the wider context, which includes relevant background and the purpose of the contract.7 Accordingly a contextual analysis of the letters annexures “A” and “B” to the Particulars of Claim requires focus not only on the clause dealing with the performance bonus, but on the letters themselves, within the factual matrix.’8


[34] He then went on to submit that the contract was ambiguous in a number of respects, particularly regarding the bonus calculation.


[35] Here one of the fundamental differences between the parties was whether the bonus was to be calculated on the basis of a two consecutive months (the defendant’s position), or whether any two months, not necessarily consecutive (the plaintiff’s position), was contemplated in the use of this term paragraph 4.1 of annexure “A” to the particulars of claim.


[36] The relevant part reads as follows :


4.1 Performance Bonus


The performance bonus will be split into three tiers, namely. Stage 1, Stage 2 and Stage 3, which will be calculated using a sliding scale. These targets are detailed in table 3 below. Graph 2 indicates the ramp-up of the bonus structure. The performance bonuses will be paid when the targets as indicated in table 3 have been achieved (either the Ore tons or the Cu metal tons, whichever is achieved first), as follows:


  • 50% will be paid at the end of the month the target is achieved

  • 50% will be paid once the target has been achieved on a two month rolling average


If the stage 1 target (as per table 1) is not achieved by the end of March 2008, then the amount of R500,000 will be carried over to the stage 2 bonus.


If a once off target of 600 Cu metal tons is achieved for December 2007, then R200,000 of the stage 1 bonus will be paid in January 2008.


Table 3


Stage


Ore Tons

(1.4%)

Cu

Metal

Tons


% of

Bonus


Accumulated

% of Bonus


Bonus

Payment


Accumulated

Amount



37500

525

4%

4%

84,000

84,000



39286

550

6%

10%

126,000

210,000


41071

575

10%

20%

210,000

420,000

1

42857

600

20%

40%

420,000

840,000


46429

650

27%

67%

567,000

1,407,000


50000

700

33%

100%

693,000

2,100,00

2


51786

725

40%

40%

440,000

440,000


53571

750

60%

100%

660,000

1,100,00

3

59500

833

100%

100%

1,200,000

1,200,000


Graph 2


(The images available in the PDF version of the judgment)




[37] Mr Graves pointed out that the Addendum (exhibit “B”) read together with the Graph 3 reflecting the sliding scale bonus for stages 1 and stages 2, clearly indicates that not only the ramping up of copper production was intended but also that such increase/ramp up be maintained.


[38] This feature was carried through from Graph 1 of the Quantum project Agreement in which Graph 1 and Table 1 both reflect the increase in copper production and the maintaining of this increase.


[39] The practical functioning of this provision was explained by the defendant’s sole witness Mr. Thomson with specific reference to the requirement that production should be ramped up and continually increased.


[40] Dealing with the suggestion in cross- examination that the contract permitted a gap between two months, he said the following:


Well it does not go with the ramp-up. I mean the whole point of the exercise is to ramp-up the production over a number of months, to continually increase it and if you now start with something in the beginning and then you have a gap of 3 or 4 months where you lower and then start coming back later on, I mean we have already lost out on the benefit.”


[41] This evidence must be seen in conjunction with Mr. Thomson’s evidence in chief regarding the theoretical basis for a ‘rolling average’ were he explained that a ‘rolling average’ is a statistical mathematical application used to smooth out anomalous spikes or troughs in a range of numbers, which mathematical application he utilises regularly for resource calculation which requires (in the case of a two month rolling average the use of 3 consecutive months).


[42] According to Mr Graves Mr. Bowes correctly conceded that the term could be read as requiring consecutive months.


[43] It was submitted therefore that the plaintiff’s contrary suggestion namely that a particular month can be separated by a gap, as illustrated the annexed ‘Bonus Calculation Summary’ annexed as “C2” to the pleadings, is not only contrary to the terms of the contract which requires a sustainable increase in copper production, but also flies in the face of a sensible commercial interpretation of the contract which is not aimed solely at benefiting the plaintiff to the detriment of the defendant.


[44] In addition the context, so it was argued, also points inescapably away from cumulative bonuses for the following reasons:


  1. The contract itself requires that the copper production be increased, and that such increase be maintained.


  1. Table 3 of annexure “A” divides the total bonus amount of R4 400 000.00 into 3 stages. These stages were clearly intended to be sequential over the 4 quarters of 2008, as confirmed in table 1 of annexure “A”. As appears from annexure “C1” to the pleadings, bonuses 1 to 6 are in stage 1, bonus 7 and 8 in stage 2 and bonus 9 in stage 3. The total monetary amount for the stage 1 bonus is R 2 100 000.00, for stage 2 R 1 100 000.00 and for stage 3 R 1 200 000.00.


  1. However annexure “C2” shows a significant anomaly: as confirmed by Mr. Bowes, the anticipated ore production utilising the plaintiff’s model was only achieved in 7 months out of the total 13 months, at a success rate of 54%. Notwithstanding this the plaintiff, on its calculation claimed 100% of the bonus in the amount of R4 400 000.00 for what was submitted to be a very mediocre performance. On the basis, if hypothetically the first 3 months of the contract were to render a rolling average of ore tons on the plaintiff’s version in excess of the target the full bonus of R 4 400 000.00 would be paid at the commencement of the contract with the inevitable disincentive for the plaintiff to perform any further. This so Mr. Grave’s argument ran further, was a manifestly absurd interpretation which would not be in accordance with the other contractual terms nor with the pre-contractual discussions. It was submitted that the court should reject such self-serving interpretation.


[45] It thus appears from what has been set out above that both parties in this matter seek to persuade the court that the interpretation for which they contend is the correct one.


[46] As Professor AJ Kerr9 puts it : A litigant who asserts that a certain interpretation is correct is saying that that he claims to be able to show that the interpretation reflects the common intention of the parties at the time the contract was entered into.10 He is not claiming that the interpretation for which he contends is necessarily founded upon dictionary meanings or even that it is the one that is bound to occur to the court first.”


[47] ‘The standard approach to ascertaining the common intention of parties who disagree on the meaning of an express provision of their contract is to consider the nature, purpose and context of the contract’. 11


[48] The nature and purpose of the Quantum Project agreement, can in the present instance be established with reference to what is stated in this regard in the agreement alone where it is recorded that :


Dune Consulting conducted a high level analysis at the Otjihase Operation between the 8th and the 12th October 2007.


The objective of the analysis was to develop a plan for the way forward for Otjihase and included certain aspects of Phase 1 of the Breakthrough methodology. The idea was that this plan would set the direction and the targets for a Viable Project Programme that would accelerate the people, management, process and system changes required to bring about a sustainable increase in throughput. The changes would occur as a result of implementing revised processes, procedures, and management control systems, within a change management framework, utilising the Quantum methodology. This methodology incorporates a three pronged approach, including, the Breakthrough process. High performance Culture and People alignment.” (my emphasis)


and that :


The following targets have been set … “



and :


It is the objective of the project to deliver the budgeted targets … “


and :

“ … the following time frame Is envisaged at this time … “


and :


Stage 1 – base to 700 Cu tons – maintain 700 Cu tons – Q1 to Q2 2008


Stage 2 – 700 Cu tons to 750 Cu tons – maintain 750 Cu tons – Q3 2008 “


Stage 3 – 750 Cu tons to 833 Cu tons – maintain 833 Cu tons – Q4 2008 – stretch target … “.


and more specifically :


The project will take 13 months to complete. Dune Consulting proposes that the project starts on the 12th November 2007 and is completed on the 12th December 2008.”


and :


A basic project fee of R2,730,000 will be invoiced monthly at a fixed rate of R210,000 for 13 months, which will be paid in arrears.”


and :


The performance bonus will be split into three tiers, namely. Stage 1, Stage 2 and Stage 3, which will be calculated using a sliding scale … ”.


[49] It appears that the stated nature, purpose and object of the contract concluded between the parties was indeed to utilize plaintiff’s quantum methodology in order to improve the effectiveness and the productivity of the defendant’s operations to effect the increasing extraction of copper at the defendant’s Otjihase operation.


[50] It appears further that the parties agreed on the specified targets, which had to be reached within a specified timeframe.


[51] In addition the parties were agreed that a bonus would be payable, in addition to the basic project fee, once certain identified targets/milestones had been achieved.


[52] This was labeled a ‘Performance Bonus’ in the language utilised in the contract and thus appears to have been included to serve as an incentive to the plaintiff to achieve the set targets/milestones – ie. to serve as a reward - in addition to the agreed ‘Project Fee’ - for having enhanced – or rather for having ‘ramped’ up the defendant’s copper production to the set targets.


[53] But clearly this is not were the plaintiff’s performance (to be rewarded by way of a ‘performance bonus’) would have ended – it was clearly one thing to ‘ramp up’ the copper production – it would have been quite another to maintain12 the ‘ramp up’ at the set levels. (which clearly was also intended and what was also to be rewarded by way of the ‘performance bonus’).


[54] Both parties were acutely aware – and anticipated - that ‘spikes’ or ‘troughs’ in the defendant’s copper production would occur which would affect the defendant’s production/performance, and which ‘spikes’ or ‘troughs’ – in turn – would impact on the to be agreed upon ‘performance bonus’.


[55] It was in the recognition of this phenomenon – and the parties were ad idem in this regard - and because they intended to ‘smooth out’ the effects of these anticipated ‘slumps’ in the defendant’s production for purposes of the ‘performance bonus’ calculations – that they expressly agreed to the inclusion of the so-called ‘rolling average’ - a statistical mathematical application - into their agreement.


[56] In these premises it must be concluded that the parties intended to give the concept of a ‘rolling average’ its technical, statistical/mathematical meaning.13


[57] This concept was only applied by the parties in the context of the bonus provisions contained in their agreement and they expressed their common intention thus :


“ … The performance bonuses will be paid when the targets as indicated in table 3 have been achieved (either the Ore tons or the Cu metal tons, whichever is achieved first), as follows:


  • 50% will be paid at the end of the month the target is achieved


  • 50% will be paid once the target has been achieved on a two month rolling average … “.


[58] It emerges therefore that the parties agreed that 50% of the agreed bonus sum, (the first half), - for the particular stage achieved -, was to be paid at the end of the month the target/milestone would have been achieved - while the other 50%, of that applicable bonus amount (ie. the second half), - would only be paid once the particular target/milestone that had been achieved – was also achieved/maintained - on a ‘two month rolling average’ … “.


[59] According to defendant’s sole witness, Mr Thomson, the acting country manager of Weatherley Mining Namibia, the calculation of a ‘rolling average’ requires, (in the case of a two month rolling average), the use of three consecutive months.


[60] Mr Thomson – who incidentally was also qualified as an expert witness by way of a Rule 36(9) notice and summary - holds the degree of B.Sc. –Geology and Applied Geology as well as a B.Sc Hons degree in Geology from the University of Natal in South Africa. He testified that in the course of his duties he regularly utilises the statistical mathematical application of the so-called ‘rolling average’ for resource calculations. He also explained that Geo-statistics is a branch of Geology. I understand the evidence to imply that Mr Thomson’s curriculum at university did not only include a course in Geo-statistics, but that he, in any event, was also au fait with the method in which a ' two month rolling average’ was to be calculated.


[61] I have no doubt that I can accept Mr Thomson’s expert evidence in this regard - the impact of which would be - that the ‘second half’ of any bonus payment – ie, once any target/milestone had been achieved – would - for purposes of ascertaining whether or not that particular target had also been achieved/maintained ‘ on a two month rolling average’ – have to be delayed by at least three consecutive months.


[62] This in turn would for example mean that, for purposes of establishing whether or not the second 50% of a bonus would become payable in respect of Target/milestone 1 – (which would, for instance, have been achieved during December 2007) – the aforesaid three month period would only commence to run from January 2008 – which in turn would mean that the ‘second half’ of that particular bonus could - at the earliest - become payable during April 2008 and only if that particular target/milestone would also have been achieved/maintained during the period January, February and March 2008 at the particular level set.


[63] The cancellation of the contracts, which occurred on 15 July 2008, would then also potentially affect any ‘second half’ bonus payments - in respect of which the three month consecutive period - required for the determination of whether or not the applicable particular target – which had been achieved prior to cancellation - had also been maintained on a ‘two month rolling average’ – at the time of cancellation.


[64] The contract then stipulates further that … ‘ the performance bonuses will be paid when the targets as indicated in table 3 have been achieved (either the Ore tons or the Cu metal tons, whichever is achieved first) … “. It will already have been noticed from the above recorded arguments mustered on behalf of the parties that the effect of this phrase, on the claimed ‘performance bonus’, formed the basis of a further fundamental interpretational dispute between them.


[65] At first glance, the language employed, seems clear and to the effect that a ‘performance bonus’ would be paid once the set targets would have been achieved either in ‘Ore tons’ or in ‘Cu tons’, ‘whichever is achieved first’. This was also what Mr Maritz contended for and on the basis of which he submitted further that the clear language utilised should determine this issue in favour of the plaintiff. Mr Graves on the other hand had urged the court to find that that this was a clear instance in which the context would operate with sufficient force ‘ … to override clear language pointing the other way … ‘,


[67} In order to determine this question I am mindful that the mode of construction should never be to interpret the particular phrase in isolation’14 and that regard should be had ‘ … to the context in which the … phrase is used with its interrelation to the contract as a whole, including the nature and purpose of the contract …15 and ‘ … to the background circumstances which explain the genesis and purpose of the contract, ie to matters probably present to the minds of the parties when they contracted .. .’ 16


[67] I respectfully agree with and will adopt the approach formulated by the South African Appellate Division in the referred to decision of Coopers and Lybrand v Bryant at 768 A – E.17 In the application of these principles I am also mindful of what Professor RH Christie has so elegantly put in that regard, namely that : ‘the four steps of this technique’ - (ie. the four steps of the technique as formulated in the Coopers & Lybrand case at 768 A-E) - should not be “ … paced out in succession with military precision, but must be danced with some pirouetting and an entrechat or two … “.18 Ultimately I will endeavor to take into account that the phrase in question should be interpreted in such a way ‘ … which would convey to a reasonable person, having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract… ‘. I also agree that the so-called ‘matrix of fact’ as formulated by Lord Wilberforce may include absolutely everything which would have affected the way in which the language of the document would have been understood by a reasonable man.’ In this regard I also wish to indicate my respectful agreement with Lord Hoffmannn’s summary formulation in Lloyds of London Underwriting Syndicates 969,48,1183 and 2183 v Skibya Property Investments (Pty) Ltd.19



[68] If one then has regard to the factual position on the ground - pertaining to the mining of copper at defendant’s Otjihase mine – and were the evidence was to the effect that the manner - in which the copper was mined there - meant that the copper tonnage (‘cu tons’) could never be determined first in time, as the copper ore – measured in ‘ore tons’ - would first have to be extracted from the ground at the Otjihase mine, near Windhoek, where after only such ore would be sent to the Tsumeb smelter – were the copper concentrate – measured in ‘cu tons’ - would be extracted from the ‘ore tons’ in Tsumeb – which process would necessarily occur well after the ‘ore tonnage’ had been determined at the Otjihase Mine – it appears that the inclusion of the reference to ‘cu tons’ for purposes of determining the reaching of bonus milestones in the clause under consideration would – practically speaking – be meaningless – as the extraction of ore would always occur first in time – and ‘ore tons’ would thus always - de facto - be the only yardstick – against which the determination of - and the reaching of milestones - for purposes establishing the plaintiff’s entitlement to the ‘performance boni’ - would be made.


[69] In such scenario and given the parameters set by the abovmentioned applicable legal principles – taking into account further that the contract in question is a commercial instrument, concluded between the parties with the clear intention that it should have commercial operation in the mining environment in which it operated - two possibilities emerge :


  1. the first would be to regard the phrase ‘ … or the cu metal tons, whichever is achieved first … ‘ in clause 4.1 of the Quantum Project Agreement as pro non scripto in order to give recognition to the situation on the ground that – practically speaking – regard to ‘cu tons’ would be meaningless for the determination of milestones for purposes of bonus payments – as the extraction of ore - and thus the determination of bonus milestones with reference ‘ore tons’ would always occur first in time;


or


  1. secondly to regard the reference to ‘ … ‘ore tons’ … , whichever is achieved first … ‘ in clause 4.1 of the Quantum Project Agreement as pro non scripto as ‘the contract between the parties should reflect the actual production process in which the copper metal tons could never be achieved first in time but were the context required a direct correlation between ore tons and copper tons, the practical effect of which would be to require the bonus to be determined on the basis of copper tons as the evidence had established that the aim of the plaintiff’s quantum methodology was to improve the effectiveness and the productivity of the defendant’s operations in order to ‘ramp up’ the extraction of copper’.


[70] Although I have no doubt – given the background scenario sketched above - that option one would also accord with background circumstances and would not be out of context – I nevertheless favour the second option for the following reasons :


  1. It appears from clause 4.1of the Quantum project Agreement that reference there is made to three ‘stages’;20


  1. These stages are all reflected in ‘cu (metal) tons’21;


  1. Clause 4.1 expressly states : ‘If the stage 1 target (as per table 1) is not achieved by the end of March 2008, then the amount of R500,000 will be carried over to the stage 2 bonus.’ The referred to ‘stage 1 target (as per table 1)’ is expressed in ‘cu (metal) tons’;


  1. Clause 4.1 expressly also states that : ‘If a once off target of 600 Cu metal tons is achieved for December 2007, then R200,000 of the stage 1 bonus will be paid in January 2008. (my underlining) – Again this target is expressed in ‘cu (metal) tons’;


  1. Table 1 sets the targets to be achieved in ‘cu tons’;22


  1. Immediately below Graph 1 – under the heading ‘1.1 Targets’ it is recorded : ‘It is the objective of the project to deliver the budgeted targets as indicated above’. The ‘budgeted targets indicated above’ are again expressed in ’Cu (metal) tons’;


  1. The Quantum Project Agreement thus makes predominantly reference to ‘cu (metal) tons’ as opposed to ‘ore tons’ – to which reference is only made in clause 4.1 and Table 3;


  1. The nature, purpose and the express object of the agreement was to ‘ramp up’ the defendant’s copper production and to ‘… deliver the budgeted targets … ‘ expressed in ‘cu (metal) tons’ and ultimately to - ‘ … make money out of the mining of copper …’,


  1. These important aspects were all known to the parties at the time of the contract and the continuous reference to cu (metal) tons, which runs like the so-called ‘golden thread’ through the agreement is a further strong indicator that the parties essentially had ‘cu (copper) tons’ in mind when the phrase‘ the performance bonuses will be paid when the targets as indicated in table 3 have been achieved (either the Ore tons or the Cu metal tons, whichever is achieved first) … “ was agreed upon.



  1. In my view it cannot in such circumstances be concluded that it was ever the common intention of the parties that – all of a sudden - the determination of the ‘performance bonus’ should now simply be divorced from - and should now – all of a sudden – practically occur without reference to ‘cu (metal) tons’ - the all- important underlying factor and common denominator which runs throughout the remainder of the contract.


  1. The first option mentioned above, would in this sense be at odds with the commercial genesis of the contract and would also not achieve an interpretation which would interrelate with the Quantum Project Agreement as a whole to the same extent that option two would.



[71] Option two – would also – in my respectful view – not only – in a purposive manner23 - resuscitate the seemingly meaningless reference to ‘cu (metal) tons’ in clause 4.1 by giving it a business efficacy, which would at the same time also give recognition to the predominant intention expressed by the parties in their agreement as regards its object, nature and purpose - but would also give recognition to the commercial matrix in which the Quantum Project Agreement operated and against which the contractual relationship between the parties should be viewed.


[72] Ultimately such interpretation would also give effect to- and be in line with what the parties ultimately indented to achieve - as expressed in the object of the Quantum Project Agreement.24


[73] It is for these reasons that I conclude that the context in this matter does operate with sufficient force to justify the finding that the referred to portion of paragraph 4.1 of annexure “A” to the pleadings could only have intended to mean that the plaintiff’s ‘Performance Bonus’ should be calculated on the basis of copper metal tons.


[74] As the parties did only request the court to interpret the Quantum Project Agreement at this stage, the impact of such interpretation on the plainitff’s ‘Performance Bonus’ claim, will still have to be assessed.



THE CANCELLATION ISSUE



[75] The cancellation of both the Quantum Project Agreement as well as the Supply Chain Agreement was regulated as follows :


Wheatherly Mining Namibia may cancel this agreement at any time during the project with one week’s written notice of termination and with payment in full for all scheduled time worked as per agreed Project Fee up to the date of termination.”


[76] Mr. Maritz submitted that in order to be entitled to terminate the agreement the defendant had to pay all outstanding amounts as at date of such termination. As the defendant had not fully paid the invoiced amounts for June 2008 the agreement was not validly terminated during July 2008 and plaintiff therefore remained entitled to the balance of the Quantum Project Agreement Fees for the months of August, September, October and November 2008 as well as in terms of the supply chain agreement for August 2008.


[77] He underscored this argument by the submission that the phrase “for all scheduled time worked as per the agreed project fee’ refers at its most conservative to payment in terms of the last issued invoice”.


[78] On the other hand it was submitted on behalf of the defendant that the cancellation letter in which plaintiff was notified of defendant’s intention to terminate was dated 15 July 2008. Under cover of plaintiff’s e-mail of 31 July 2008 it was confirmed that plaintiff’s personnel had left the site at the defendant’s request. Mr. Bowes in evidence confirmed that none of the plaintiff’s personnel rendered any services to defendant subsequent to 31 July 2008.


[79] As the plaintiff had failed to lead any evidence as to any scheduled time worked in respect of the monthly ‘Project Fee’ agreed in the Quantum Project Agreement in the sum of N$ 210 000.00 and the monthly ‘Project Fee’ agreed upon in the Supply Chain Agreement for the sum N$ 240 000.00 it was contended that these amounts had not become payable as the plaintiff had led no evidence and had thus not proved that it had rendered any services to the defendant after 31 July 2008 so as to permit it to claim ‘Project Fees’ on either of these contracts subsequent to the 31st July 2008. It was submitted further that it was common cause that the defendant had paid the project fees in respect of both contracts up to the end of July 2008.


[80] I am unable to uphold the submission, made on behalf of the plaintiff, that, in terms of the clause regulating the termination of both agreements, the defendant had to pay all outstanding amounts as at date of such termination and that the phrase “for all scheduled time worked as per the agreed project fee refers at its most conservative to payment in terms of the last issued invoice”.


[81] The applicable clause 4 expressly refers to ‘payment in full for all scheduled time worked as per agreed ‘Project Fee’. The agreed ‘Project Fees’ are described as such in both the Quantum Project- as well as the Supply Chain Agreements Although I take into account that it may still appear that there may still be an outstanding amount due to the plaintiff in respect of the ‘performance bonus’ claimable in terms of clause 4.1, it appears from the wording of clause 4 that the parties did not intend to make the agreed upon termination dependant on the aspect of payment of any outstanding bonus. This is not surprising as the second 50% of any performance bonus was dependent in any event on the effluxion of the time required for the determination of the two month rolling average.


[82] Also the phrase ‘the last issued invoice’ must necessarily in this context refer to the last issued invoice relating to the agreed ‘Project Fee.


[83] As the agreements were terminated by written notice on 15 July 2008, and as it is indeed common cause that the ‘Project Fees’ in respect of both contracts were paid up to the end of July 2008 and as there is indeed no evidence as to any time worked, beyond July 2008, the plaintiff has failed to prove that it rendered any services to the defendant after 31 July 2008 so as to permit it to claim ‘Project Fees’ on either of the relied upon contracts subsequent to the 31st July 2008.


[84] The parties have requested me also not to make any order as to costs – at this stage.


[85] In view of my findings relating to the interpretation of the Quantum Project Agreement impacting on plaintiff’s claim relating to the ‘Performance Bonus’, I will permit the parties to approach the court again in respect of any unpaid claim the plaintiff may still have in this regard and also in respect of the costs of this matter, should they so choose.


[86] In the result the following orders are made :


  1. The plaintiff’s claims relating to the monthly ‘Project Fee’ in terms of the Quantum Project Agreement in the sum of N$ 210 000.00, and the claim for the monthly ‘Project Fee’ in terms of the Supply Chain Agreement for the sum N$ 240 000.00 are dismissed;


  1. The plaintiff is entitled to set the matter down again for hearing – should it so choose – for purposes of quantifying its claims relating to the ‘performance bonus’ - within 30 days of this order;


  1. No order of costs is made.







_____________________

GEIER, AJ
















COUNSEL FOR PLAINTIFF:

Adv JD MARITZ SC


Instructed by:

FRANCOIS ERASMUS & PARTNERS




COUNSEL FOR DEFENDANT:

ADV NJ GRAVES SC


Instructed by :

LORENTZANGULA INC


1Coopers and Lybrand v Bryant at 768 A -E

2Also reported in 1998 [1] All ER 98 (HL)

3Per Schreiner JA in Jaga v Dönges NO & Ano 1950 (4) SA 653 (A) at 663F-G

4Lloyds of London Underwriting Syndicates 969,48,1183 and 2183 v Skibya Property Investments (Pty) Ltd [2004] 1 All SA 386 (SCA) at 391

6Aktiebolaget Hässle & Another v Triomed Pty Ltd 2003 (1) SA 155 (SCA) at 157G

7Prof. RH Christie : The Law of Contract in South Africa (5th Ed) at pages 210-218

8See Swart v Cape Fabrics (Pty) Ltd 1979 (1) SA 195 at 202C See also Lloyds of London Underwriting Syndicates 969,48,1183 and 2183 v Skibya Property Investments (Pty) Ltd were Lord Hoffman states : “(2) The background was famously referred to by Lord Wilberforce as the ‘factual matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the *913 exception to be mentioned next, it includes absolutely everything which would have affected the way in which the language in the document would have been understood by the reasonable man.”

9The Principles of the Law of Contract’ (6th Ed) at p 388

10Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd & Others 1980 (1) SA 796 (A) at 804D-E, 808A-B

11Swart v Cape Fabrics (Pty) Ltd at 202A; Coopers & Lybrand at 767J

12Stage 1 – base to 700 Cu tons – maintain 700 Cu tons – Q1 to Q2 2008 - Stage 2 – 700 Cu tons to 750 Cu tons – maintain 750 Cu tons – Q3 2008 - Stage 3 – 750 Cu tons to 833 Cu tons – maintain 833 Cu tons – Q4 2008 – stretch target …


13Very few words . . . bear a single meaning, and the “ordinary” meaning of words appearing in a contract will necessarily depend upon the context in which they are used, their interrelation and the nature of the transaction as it appears from the entire contract. It may, for example, be quite plain from reading the contract as a whole that a certain word or words are not used in their popular everyday meaning, but are employed in a somewhat exceptional, or even technical sense …’ : Per Jansen JA in Sassoon Confirming and Acceptance Co (Pty) Ltd v Barclays National Bank Ltd 1974 (1) SA 641 (A) at 646B quoting from List v Jungers 1979 (3) SA 106 (A) at 119A-B

14Per Rumpff CJ in Swart v Cape Fabrics (Pty) Ltd 202C : See also : National Address Buro v SWA Broadcasting Corporation 1991 NR 35 HC at 51F – 52G

15Coopers and Lybrand v Bryant at 768 A

16Coopers and Lybrand v Bryant at 768 B

17Cited with approval also by the Supreme Court of Appeal in a string of cases – See for instance : Gardner & Another v Margo 2006 (6) SA 33 (SCA) at [25]; Southernport Developments (Pty) Ltd v Tansnet Ltd 2005 (2) SA 202 (SCA) at [10] and Metcash Trading Ltd v Credit Guarantee Insurance Corporations of Africa Ltd were Southwood AJA also analysed this approach with reference to the interpretation of the policy of insurance and stated the approach as follows: “According to our law ... a policy of insurance must be construed like any other written contract so as to give effect to the intention of the parties as expressed in the terms of the policy, considered as a whole. The terms are to be understood in their plain, ordinary and popular sense unless it is evident from the context that the parties intended them to have a different meaning, or unless they have by known usage of trade, or the like, acquired a peculiar sense distinct from their popular meaning’ - (Blackshaws (Pty) Ltd v Constantia Insurance Co Ltd 1983 (1) SA 120 (A) at 126H-127A). - If the ordinary sense of the words necessarily leads to some absurdity or to some repugnance or inconsistency with the rest of the contract, then the Court may modify the words just so much as to avoid that absurdity or inconsistency but no more (Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 at 464-6; Fedgen Insurance Ltd v Leyds [1995] ZASCA 20; 1995 (3) SA 33 (A) at 38B-E). It must also be borne in mind that: ‘Very few words . . . bear a single meaning, and the “ordinary” meaning of words appearing in a contract will necessarily depend upon the context in which they are used, their interrelation and the nature of the transaction as it appears from the entire contract’ - (Sassoon Confirming and Acceptance Co (Pty) Ltd v Barclays National Bank Ltd 1974 (1) SA 641 (A) at 646B) - It is essential to have regard to the context in which the word or phrase is used with its interrelation to the contract as a whole, including the nature and purpose of the contract (Coopers & Lybrand and Others v Bryant [1995] ZASCA 64; 1995 (3) SA 761 (A) at 768A-B; Aktiebolaget Hässle and Another v Triomed (Pty) Ltd 2003 (1) SA 155 (SCA) in para [1]).”

18Prof. RH Christie : The Law of Contract in South Africa (5th Ed) at pages 205-206

191998 [1] All ER 98 (HL)

20The performance bonus will be split into three tiers, namely. Stage 1, Stage 2 and Stage 3, which will be calculated using a sliding scale. These targets are detailed in table 3 below. Graph 2 indicates the ramp-up of the bonus structure.

21See for instance Graphs 1, 2 and 3

22Stage 1 – base to 700 Cu tons – maintain 700 Cu tons – Q1 to Q2 2008“ Stage 2 – 700 Cu tons to 750 Cu tons – maintain 750 Cu tons – Q3 - 2008 “ Stage 3 – 750 Cu tons to 833 Cu tons – maintain 833 Cu tons – Q4 2008 – stretch target … “.


23Prof. RH Christie : The Law of Contract in South Africa (5th Ed) at pages 213-214 writes “The purpose of the contract may assume greater importance than merely being taken into account as part of the context. This is not surprising because once a court has ascertained the object of a contract it would be failing in its duty if it did not endeavour (without going so far as to make a contract for the parties) to give effect to the object the parties intended to achieve by their contract. The method of pursuing this endeavour has long been known as purposive construction. In Public Carriers Association v Toll Road Concessionaires (Pty) Ltd 1990 1 SA 925 (A) 943C Smalberger JA said: ‘The notion of what is known as a ‘purposive construction’ is not entirely alien to our law” and gave examples of its application in patent cases, but noted that it did not hitherto appear to have been more widely applied in our law. The gap was filled in Venter v Credit Guarantee Insurance Corpn of Africa Ltd [1996] ZASCA 50; 1996 3 SA 966 (A) where FH Grosskopf JA, in interpreting a contract, said at 973 D: “Insofar as the words used in the undertaking are capable of bearing different meanings, a ‘purposive construction’ may be applied…”

Prof Christie writes further :Purposive interpretation is appropriate, not only when the wording of the contract is ambiguous, as in Venter v Credit Guarantee above, but when the clear meaning of the words, if put into effect, would “nullify the essential purpose of the contract”, as in Turner Morris (Pty) Ltd v Riddell 1996 4 SA 397 (E) 404H-J. The adoption of a purposive construction in such circumstances is consistent with the cases on absurdity, repugnancy … ‘”

24It is the objective of the project to deliver the budgeted targets as indicated above’. The ‘budgeted target indicated above’ are expressed in ’Cu (metal) tons’