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Last Updated: 7 December 2004
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/
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 building 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 Refrigeration 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 constructing a
factory in Kempton Park. To that end, it called for tenders. Club Refrigeration
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 movable. It contained the
following clauses which are relevant for present
purposes:
‘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 Building
Agreement
prepared by the Joint Building Contracts Committee
Inc.
[3] Fisher Foods responded to the tender by sending a document to
the applicant dated 15 November 2001. The 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 agreed 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:
• Receipt of an agreed and signed copy of the JBCC building agreement code 2101 published July 2000 and the relevant Bank guarantee pertaining to this agreement. All further payments will be in accordance with the JCBB building agreement...’
Club Refrigeration thereafter submitted a
signed copy of the JBCC agreement to Fisher Foods.
[4] The building works
undertaken by Fisher Foods were financed by the Industrial Development
Corporation 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 loan and
subsequently perfected 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 reasons
which will become apparent, that 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 (PTY) LIMITED (in liquidation) at 17 POMONA ROAD, AVIATION PARK, KEMPTON
PARK.
2.2 A general notarial covering bond was registered by FISHER FOODS
SOUTH AFRICA (PTY) LIMITED (“Fisher 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 assets
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.
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 hundred and eighty thousand rands) plus
VAT (“the purchase price”).
3. THE SALE ASSETS
3.1 IDC and
Club Refrigeration hereby agree that the joint provisional liquidators are
entitled to sell the sale assets to Afgri
for the purchase price which shall be
held by the joint provisional liquidators in an interest bearing account and
paid 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 respectively 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
determined 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
account 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 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 the 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 liquidators 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, subject 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 applicable. The court a quo (Botha J) granted the relief sought by
Club Refrigeration and the present appeal is with the leave of that
court.
[8] Before dealing with the four submissions 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 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 inasmuch 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 binding 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 Club Refrigeration and
sent
to Fisher Foods, as required in the order placed by Fisher Foods on Club
Refrigeration. Clause 2 of that agreement provides:
‘2.0 OFFER
ACCEPTANCE AND PERFORMANCE
2.1 The objective of this agreement is the
execution of and payment for the works for which there has been an offer by the
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 documents 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 documents 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 tender, 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 contract, unless
there is a mechanism for ascertaining which portion of the contract price
pertained
to particular movable assets to be delivered in terms of the
agreement, it will be impossible to determine whether payment for individual
items had been made; and there is no such mechanism. In my view, there
is.
[12] The order placed by Fisher Foods made specific provision for
payment in terms of the JBCC agreement. Clause 31 of the JBCC agreement
provides
for interim payments to be made to the contractor. Clause 31.4 provides that the
value 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 estimate of the value of materials and
goods in terms of 31.6...’
(It is not necessary for present purposes
to have regard to clause 31.6 or to consider the submission by counsel
representing the
liquidators that the court a quo was incorrect in
considering that the movable goods at issue in these proceedings would fall to
be certified under clause 31.4.2.)
Clause 31.9 provides that 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 provides 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 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 Refrigeration’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 incorporated 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 contradicted.
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
Refrigeration’s claim that it was the owner of the goods.
[14] The
third submission by counsel for the liquidators was that because the value of
the goods was not specified in any payment
certificate, whether interim or
final, Club Refrigeration was not entitled to payment in respect of those goods
in terms of the JBCC
agreement forming part of its contract with Fisher 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
precisely 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 was
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. In
clause 3.5, the liquidators undertook to deal with the
proceeds of the purchase price in terms of the liquidation and distribution
account in due course ‘unless otherwise determined 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 liquidators, 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 such 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 would have
to be paid over to Club Refrigeration.
[17] To sum up: Club Refrigeration
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 Refrigeration agreed with
the liquidators of Fisher Foods
that these goods could 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, they would pay the proceeds of the sale to Club Refrigeration.
Club Refrigeration has proved this and is accordingly entitled to
payment.
[18] The appeal is dismissed, with costs.
______________
T D CLOETE
JUDGE OF APPEAL
Concur: Scott JA
Mthiyane JA
Erasmus AJA
Jafta
AJA
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