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NOT REPORTABLE

IN THE KWAZULU-NATAL HIGH COURT, DURBAN

REPUBLIC OF SOUTH AFRICA CASE NO: 4113/2009

In the matter between:

PETER JOHN STORM N.O. 1^ST APPLICANT

ROSEMARY PATRICIA STORM N.O. 2^ND APPLICANT

JOHN ANTHONY STORM N.O. 3^RD APPLICANT

MATTHEW LYALL STORM N.O. 4^TH APPLICANT

MICHAEL PAMPALLIS N.O. 5^TH APPLICANT

and

NPMS ENERGY (PTY) LTD 1^ST RESPONDENT

VAN HEERDEN LAW ATTORNEYS 2^ND RESPONDENT

JUDGMENT

GORVEN J

1. This application concerns an agreement (“the agreement”) for the sale by the applicants to the first respondent of a 50% shareholding in a company known as Shipping & Transport Petroleum (Pty) Ltd (“the company”). The applicants are the trustees of the Storm Family Trust. Prior to the conclusion of the agreement, the first respondent and the applicants each owned a 50% shareholding in the company. The agreement, therefore, was designed to make the first respondent the owner of the entire shareholding in the company. The company’s only assets are its 100% shareholding in two companies, Sydney Road Truck Stop (Pty) Ltd and The Oil Centre Durban (Pty) Ltd. These companies’ major assets were in turn a lease and franchise agreement respectively with Engen Petroleum Ltd (“Engen”). They were each to endure for a period of 5 years with Engen having the right to renew or to terminate at the end of that period. The lease and franchise were due to terminate, if not renewed, on 31 March 2009 and 31 October 2009 respectively.

2. The second respondent holds in trust the purchase price sued for by the applicants and is not otherwise involved in the dispute.

3. The applicants seek to enforce the agreement. The relief sought is all based on giving effect to the terms of the agreement. The agreement was concluded on 24 February 2009, having been signed by the first respondent on that date. The signature appears above the name of a different company but neither party made anything of this. The applicants, represented by the first applicant, signed the agreement on 16 February 2009. These dates have some significance in the matter.

4. The agreement contains a non-variation clause as well as clause 13.2 which is to the following effect:

This document contains the entire agreement between the parties and no party shall be bound by any undertakings, representations, warranties, promises or the like not recorded herein.

5. It also contains the following clause 15 under the heading “Sureties”:

It is hereby recorded the Purchaser has gained the approval of Engen Petroleum Limited for this transaction in fulfilment of the suspensive condition contained in the Heads of Share Sale Agreement as entered into between the Parties. The Purchaser shall substitute the Seller’s sureties held by Engen Oil with equivalent sureties, to the satisfaction of Engen and shall also substitute the Seller’s sureties held by ABSA Bank in respect of asset finance provided by ABSA Bank Ltd.

6. Clause 15 has given rise to a dispute between the parties. The applicants say that the first part, namely the recordal by both parties that Engen had approved the agreement, was correct. The first respondent says that this was incorrect and, what is more, that the first applicant knew it to be incorrect. In addition, the first respondent says that the reference to the Heads of Share Sale Agreement refers to annexure MK5 to the first respondent’s answering affidavit. Since that unsigned agreement contained a suspensive condition, namely requiring Engen’s written approval of the proposed purchase by the first respondent of the applicants’ shareholding in the company, it was submitted that such approval was a condition precedent to the agreement binding the parties. The first applicant says that he has never seen this document and that there is no such agreement. Even if there was such agreement, he says, it is irrelevant since the agreement stands alone. He does not say what is meant by the Heads of Share Sale Agreement.

7. The first respondent put up minutes of meetings showing that Engen had not then or thereafter approved the sale of shares. Amongst these is a minute of a meeting held on 27 February 2009 where a representative of Engen produced a copy of what was presumably the agreement and drew the attention of the people present to the fact that clause 15 was wrong since Engen had not approved any change in shareholding. The minute then recorded that a representative of the first respondent explained that he acknowledged that clause 15 was incorrect but that the first applicant had pressured the first respondent to leave the clause in and sign the document. He said that, after signature, the first respondent’s lawyer had corrected this in a letter to the applicants.

8. This last averment refers to an email forming part of annexure MK8. This began with an email to the first applicant from his attorney and was followed by an email from the first applicant to Engen quoting part of clause 15 of the agreement and stating that Engen had approved the sale. This alone shows that the first applicant viewed this clause as important to the agreement and himself attached significance to it. The email then contained the response of the first respondent’s attorney where he drew attention to the reference to clause 15, said that this showed that the parties were aware that any sale of shares would “only be consummated once Engen has renewed the lease agreement” and challenged the first applicant to show that this written consent had been given. This challenge was never taken up. The minutes of a meeting held on 27 March 2007 record that one of the Engen representatives stated that “all parties, including Peter Storm, were advised that no money was to change hands as Engen needed to give approval first before the sale went through … it was noted that at no time did Engen give approval for the sale of shares by Storm Family Trust”.

9. What is further instructive is that the minute of a meeting of 5 February 2009 recorded that “Peter Storm informed us that a deal to sell his shares in [the company] had been agreed. He proceeded in front of us to sign the document”. It was then recorded that, when it became apparent to the meeting that the agreement related to the sale of shares in the company, the Engen representatives made it clear that Engen had not agreed to any sale. There are two significant features of this last meeting. First, the agreement reflects that it was signed by the first applicant on 16 February and not 5 February. Secondly, it was made clear at that stage, before the first respondent signed, that what clause 15 recorded was not correct.

10. In the light of this the assertion by the first respondent that this was known by the parties to be fundamental to the coming into effect of the agreement appears, at the very least, to have some credence. In reply to the assertion by the first respondent that the applicants accepted that the value of the remaining shares would be solely dependent on the renewal of the lease agreement with Engen, the first applicant says that the first respondent was at all times confident that it could renew the lease with Engen. He also says that, before a barrage of emails by the deponent to the first respondent’s affidavit was sent, Engen had in fact granted approval for the renewal of the lease. Once again, the importance of the consent of Engen and the renewal of the lease is not denied by the applicants but is in fact underscored.

11. In addition, the first respondent submitted that, since the leases with Engen were to terminate on 31 March 2009 and 31 October 2009 respectively, the entire substratum of the businesses of the two companies held by the company and, thus, the viability of the company, depended on the leases being renewed. Therefore, the agreement was not to be binding without agreement from Engen to renew the leases. This, it says, had not taken place. On the contrary, Engen had given notice, of which the first applicant was aware, that neither lease would be renewed. These notices, copies of which were put up, were dated 3 and 13 February 2009 respectively. If the first applicant signed the agreement on 16 February, this post-dates the date the first applicant knew of the notices. Even if he signed on 5 February, it is after the date of the first notice which related to the lease. The first respondent clearly signed after the date of both notices.

12. The first respondent asserted that these notices and the failure to approve the sale of shareholding placed at risk the entire substratum of the company. It says that the first respondent had made it known to the applicants, and the applicants accepted, that the value of the shares to be sold would be solely dependent on the renewal of the lease agreements. As indicated above, the first applicant claims that approval of the sale of shareholding had been given and withdrawn by Engen due to unseemly emails sent by the deponent to the first respondent’s affidavit. He also says that the letters notifying of the termination were not issued in order to oblige the two companies to vacate their sites but to bring finality to the negotiations relating to the sale of the shareholding. These assertions are in no way borne out by the minutes put up. Their significance, however, is to confirm the importance of the leases and the consent of Engen to the sale of shares. The only mention in the agreement of anything to do with Engen’s consent is in clause 15 of the agreement.

13. It was submitted on behalf of the applicants that, even assuming that the recordal was wrong to the knowledge of the applicants, no consequence arose. This requires a finding that this part of the clause is irrelevant but our courts have consistently and from early on stressed the presumption against superfluity of clauses in a contract.¹ In addition, the first respondent asserted in the answering affidavit that it was the common continuing intention of the parties at the time of concluding the agreement that the underlying business of the two companies would be secured before the purchase price would be paid to the seller. The inclusion of a reference to Engen’s prior approval is significant in the light of the surrounding circumstances. The difficulty, of course, is that clause 15 is silent as to any consequence if the recordal is incorrect.

14. In the light of what I have said above, the interpretation of clause 15 and how it came to be included gives rise to considerable difficulty. The explanation of the first applicant does not come close to according it any significance. From the point of view of the first applicant, the first part of the clause may just as well not exist. The explanation of the first respondent has some support, at least, in the surrounding circumstances and the remaining part of the clause, namely that the first respondent is to substitute the applicant’s sureties held by Engen to the satisfaction of Engen. Without Engen’s consent to the sale, it could simply withhold its consent to the substitution of the sureties and render this part of the agreement impossible of performance. This part of the clause prima facie lends credence to the claim of the first respondent that the prior agreement to the sale by Engen was fundamental to the coming into effect of the agreement. As mentioned, the first applicant did not seek to deny that the renewal of the lease and the consent of Engen to the sale of shares were necessary for the substratum of the company to remain in place.

15. The courts have long debated the approach to interpreting contracts and, in particular when and what evidence may be led relating to a written contract. This was dealt with in Engelbrecht & Another NNO v Senwes Ltd ², quoting extensively from Coopers & Lybrand and Others v Bryant³ as follows:

[6] The Court order in this case records an agreement of settlement and the basic principles of the interpretation of contracts need therefore be applied to ascertain the meaning of the agreement. The approach to be followed was summarised in Coopers & Lybrand and Others v Bryant:

'I proceed to ascertain the common intention of the parties from the language used in the instrument. Various canons of construction are available to ascertain their common intention at the time of concluding the [contract]. 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 ..;

(2) 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. . . ;

(3) to apply extrinsic evidence regarding the surrounding circumstances when the language of the document is on the face of it 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.'

[7] The intention of the parties is ascertained from the language used read in its contextual setting and in the light of admissible evidence. There are three classes of admissible evidence. Evidence of background facts is always admissible. These facts, matters probably present in the minds of the parties when they contracted, are part of the context and explain the 'genesis of the transaction' or its 'factual matrix'. Its aim is to put the Court 'in the armchair of the author(s)' of the document. Evidence of 'surrounding circumstances' is admissible only if a contextual interpretation fails to clear up an ambiguity or uncertainty. Evidence of what passed between the parties during the negotiations that preceded the conclusion of the agreement is admissible only in the case where evidence of the surrounding circumstances does not provide 'sufficient certainty'.

16. It can be seen from what is set out above that the clause is not capable of linguistic treatment by way of strict textual analysis in such a way as to render it meaningful. The evidence as to background circumstances is of some assistance but is disputed. These also do not go far enough to make the meaning of the clause clear and, in my view, may well give rise to one of those situations where extrinsic evidence as to what passed between the parties may be led. I do not make a finding on this aspect, however, because evidence of the background circumstances may well be sufficient once properly focussed factual disputes have been clarified. This cannot be done on the papers. The factual disputes are also not capable of resolution by oral evidence since the issues require definition which can best be achieved by way of the exchange of pleadings. In the event, I am of the view that the matter should be referred to trial. The trial court will also be in a better position to determine the question of costs of the application and, in particular, whether the applicant was entitled, in the light of the disputes raised prior to the application being launched, to bring the application and to persist in the light of the disputes raised in the answering affidavit. The parties agreed in argument that the costs reserved to date should be costs in the cause.

17. The following order shall issue:

    1. The matter is referred to trial.

    2. The Notice of Motion shall stand as a simple summons in the action.

    3. The applicant is directed to deliver a Declaration within 15 days from the date of this order.

    4. The Rules of Court shall govern the conduct of the action thereafter.

    5. The reserved costs to date shall be costs in the cause in the action and the costs of the application shall be reserved for decision by the trial court.

For the applicants: ME Stewart instructed by Vinnicombe & Associates, c/o Johnston & Partners

For the first respondent: HJ Fischer, instructed by Bowman Gilfillan Inc c/o Garlicke & Bousfield Inc.

Date of hearing: 6 November 2009

Date of Judgment: 18 November 2009

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