African Dynamics (Eastern Cape) (Pty) Ltd v MEC for Education, Eastern Cape Province and Others (352/2007, 583/2007, 768/2007) [2010] ZAECBHC 12 (13 September 2010)

IN THE HIGH COURT OF

SOUTH AFRICA

(BHISHO)

CASE Nos: 352/2007

583/2007

768/2007

DATE HEARD: 13 APRIL 2010

DATE DELIVERED: 13 SEPTEMBER 2010

Not Reportable

In the matter between:

AFRICAN DYNAMICS (EASTERN CAPE) (PTY) LTD

APPLICANT and

MEMBER

OF THE EXECUTIVE COUNCIL OF THE PROVINCIAL GOVERNMENT OF THE

EASTERN CAPE RESPONSIBLE FOR EDUCATION 1st

RESPONDENT BY BREEZE TRADING 48 CC AND 32 OTHERS 2nd to 33rd RESPONDENTS

JUDGMENT

KEMP AJ

The Applicant is a supplier of foodstuffs and entered into various agreements with the 2nd to 33rd Respondents (“the Suppliers”) in order to enable the Applicant to manufacture and supply foodstuff to the Suppliers, who would in turn, deliver it to schools nominated by the 2nd Respondent (“the Department”). One of the agreements is an agreement of cession in terms of which the Suppliers purported to cede their rights to claim payment from the the Department to the Applicant. The reason the Applicant gave for the parties entering into the agreements of cession was that the Suppliers were mainly shelf corporations brought into being with the sole purpose of providing foodstuff to schools in terms of the government’s school feeding scheme. The cessions formed the principal security against which the Applicant undertook to do business with them.

Only the Department opposed the application. It became common cause between the parties that the Department received due notice of the cessions but although it initially paid the Applicant in terms of some of them, it then stopped paying some of those, diverting payments to the Suppliers and failed to pay the Applicant at all in respect of other Suppliers, paying them directly. The Applicant sought to enforce payment of the debts paid directly to the Suppliers in apparent breach of the cessions, and also sought to ensure that any remaining debts were paid to the Applicants and not to the Suppliers. The Department opposed the relief sought on the basis that the cessions were prohibited by a pactum de non cedendo it had entered into with the Suppliers, and brought an application to amend the common law:

“Declaring that the common law principle to the effect that the debtor is not discharged from its obligations if he makes payment

directly to the principal creditor (the cedent) instead of the cessionary is not … applicable to state organs.”

The Department also applied, in the event that its application to amend the common law was unsuccessful, for the joinder of the Suppliers. The application for joinder was not opposed by any of the parties.

The application was launched in September 2007 and was eventually finalized in April 2010 after oral evidence was heard. Along the way some agreement was reached between the parties and on the 3rd August 2009 the application launched under Case Number 352/2007 was withdrawn, with agreement reached on the costs reserved on three previous occasions, as well as in respect of the hearings on the 16th September 2008, the 14th October 2008 and the 3rd August 2009.

Unbeknown to the Applicant, the Department had entered into Service Level Agreements (“SLA’s”) with all of the Suppliers prior to the Applicant entering into their agreements with the Suppliers. Included in the SLA’s was what Mr Notshe SC, on behalf of the Department, argued was an absolute prohibition against cession – a pactum de non cedendo. I quote the clause hereunder:

“19. LIMITATION OF CESSION

19.1 The rights and obligations of the Parties in terms of this Agreement shall be incapable of being ceded, assigned or delegated to any other person outside of the Supplier or the Department. A request by the Supplier for the money to be paid into a mutually accepted trust account or cessionary will be considered by the Department. The Department reserves the right to charge the supplier any cost accruable in administering such cession agreements.

19.2 Each party warrants that it is not acting as an agent for an undisclosed principal.

19.3 The cession agreements must not be open ended, they must have an expiry date.”

It is trite law that a valid pactum de non cedendo is valid against third parties and that any attempt to cede rights in contravention thereof would result in a putative transaction.1 However, it is not clear that what the parties to the SLA, and in particular the Department, intended to create, was an out and out prohibition against all cessions. Whilst the Interpretation clause of the SLA provided that the headings to the agreement were to be used for the sake of convenience only and “shall not govern the interpretation thereof”, it is instructive to note that the heading of clause 19 referred to a “Limitation of Cession” and not a “Prohibition against Cession”. Clause 19.1 consists of three sentences, the first of which reads as follows:

“The rights and obligations of the Parties in terms of this Agreement shall be incapable of being ceded, assigned or delegated to

any other person outside of the Supplier or the Department.”

Considered in isolation it appears to contain an absolute prohibition against all cessions except to the Supplier or the Department.

The second sentence reads as follows:

“A request by the Supplier for the money to be paid into a mutually accepted trust account or cessionary will be considered by the Department.” (my emphasis)

The sentence indicates that a request for payment into a trust account or to a cessionary will be considered by the Department. This, besides the heading, is the first indication that the clause does not envisage an absolute pactum de non cedendo. This sentence appears to refer to the Trust account considered by the parties. Arising out of discussions held between the Department and the Applicant it was proposed by the Department that if the Suppliers agreed that their remuneration would be paid into a mutually

agreeable trust account, that the Department would give effect to such agreement. The third sentence also appears to record a relaxation of the prohibition.

“The Department reserves the right to charge the supplier any cost accruable in administering such cession agreements.”

If there was an absolute prohibition against cessions then the third sentence and the reference to cessionaries in the second sentence would be unnecessary. The idea that there was not an absolute prohibition against cessions seems to be reinforced by clause 19.3 which provided that:

“The cession agreements must not be open ended, they must have an expiry date.”

It is common cause that the cession agreements executed by the Suppliers were open ended in the sense that they did not provide for expiry dates. However, the cessions were limited in the sense that they were recorded to provide security:

“for the indebtedness or liabilities of the Cedent to the Cessionary arising out of the contents (of) an agreement to which this contract is an accessory;”

The Cessions were recorded as coming into effect on the date of signature thereof:

“and shall endure and be in force and in effect until all obligations of the Cedent towards the Cessionary are met.”

Quite clearly what the parties intended was that the Cessions would provide security for the Supplier’s obligations in terms of the agreement, and that the Cessions would provide for such security for as long as the Suppliers were obligated to the Applicant arising from obligations created in the agreement, and no further. To that extent, the agreements were not open ended. The rights and obligations created in terms of the Cessions terminated once the Supplier’s obligations in terms of the agreement were fulfilled.

It appears from a plain reading of the “Limitation of Cession” clause that the prohibition against cession was not absolute but conditional, and that the cessions entered into by the Applicant and the Suppliers did not necessarily contravene the terms of the conditional prohibition.

Although the agreement appears to be quite unambiguous and that recourse to extrinsic evidence would appear thus to be impermissible,2 even if the terms of the agreement were ambiguous then recourse to the consideration of the conduct of the parties subsequent to the conclusion of the agreement3 would reinforce the view that neither party regarded the “Limitation of Cession” clause as an absolute prohibition.

Mr Kincaid, for the Applicant, argued that if I found that the “Limitation of Cession” clause contained an absolute prohibition against cession, that the Department was in any event liable on the basis of

estoppel. It would appear that the Department would indeed be liable in any event based on estoppel. It is quite clear that the

Department represented to the Applicant through it’s conduct that it would honour the requests for payment into the trust

account. The Applicant relied on this representation and conducted its affairs on the strength of it. The evidence of the Applicant is quite clear – they would not have supplied goods to the Suppliers unless they entered into cessions and requests for

payments into the trust account, and unless the Department indicated that it would honour them.

The evidence of the Applicant’s witness Steyl, the managing director of the Applicant at the time, was that despite numerous attempts to establish whether payments were being effected into the Trust account or into the Supplier’s accounts directly, the Department steadfastly refused to co-operate with them and refused to disclose any information, notwithstanding the Suppliers express written consent to release such information. Steyl’s evidence was further to the effect that the request to pay into a trust account by the Suppliers was a solution arrived at after discussions with senior members of the Department and that

many payments were in fact made into the trust account. Quite clearly the Department represented by it’s conduct, by paying

into the Trust account, that it would honour the requests. Heyns’s evidence was to the effect that most of the Suppliers were shelf companies that came into existence for the sole purpose of the tender and that although they had attempted to sue many of them that it was an exercise in futility. For the reasons advanced above however, I am satisfied that Clause 19 does not constitute a pactum de non cedendo, and find it accordingly unnecessary to consider in any depth the question relating to estoppel.

The agreements concluded with each of the Suppliers were a credit application, a service contract, a cession of claims agreement, and a special request for payment and information. Each of these documents was included in a pack of documents and delivered to the Department. They were not delivered to inconsequential officials, but to Mr Fray, the director of Physical Resource Planning, who was acting as Chief Director, Educational Social Support Services at the time and was the head of the Department in charge of the implementation of the program at the time. Although it was put to Mr Steyl in cross examination that Mr Fray would testify that he had warned Mr Steyl that the cessions were prohibited by the SLA’s, and that the department therefore regarded the cessions as invalid, Mr Fray in fact never testified to that effect. Mr Steyl denied, when it was put to him that Mr Fray had said anything to that effect, and that seemed to be confirmed by Mr Fray’s evidence on behalf of the Department. It seemed that Mr Fray was of the view that the evil the Department was seeking to eradicate by the inclusion of the Limitation against

Cession clause in the SLA’s was that they didn’t want Suppliers to abdicate their responsibilities. The Department was of the view that the Feeding Scheme provided an opportunity, not only to feed learners, but also to uplift and to empower members of the community who would not normally be exposed to commercial opportunities, and they did not want them to merely be “fronts” for big businesses.

The credit Application and suretyship contained details of the applicant, credit references and a suretyship binding the member of the juristic person to the Applicant for due compliance with the obligations of the Supplier, if a juristic person. The Service Contract regulated the rights and obligations of the Applicant and of the Suppliers, and specified in particular that all payments made by the Department would be made into a trust account at Nedbank, details of which were provided in the agreement.

A specimen of the Special Request for Payment and Information provided as follows:

“I/We, the undersigned authorized signatory of

Changing Tides 1347 CC (hereinafter called THE SUPPLIER)

hereby request the

EASTERN CAPE DEPARTMENT OF EDUCATION,

in respect of Tender No SCM6 – 05/06 – 0011, for the supply of primary food nutrition, to do the following.

Make all payments due to us and under the above tender to the following bank account

ACCOUNT HOLDER: SCHOOL NUTRITION PROGRAMME

BANK: NEDBANK

BRANCH: EAST LONDON

ACCOUNT NUMBER: 9005714864

BRANCH CODE: 720026

ACCOUNT TYPE: ___

I/We instruct and request the said Department not to change any of the abovementioned banking detail without the prior written consent of THE MANUFACTURER or any of it’s representatives. THE MANUFACTURER in this matter is African Dynamics Group (Pty) Ltd.

This instruction and request commence on date of signature hereof and shall endure until all obligations of THE SUPPLIER towards THE MANUFACTURER have been complied with and/ or on receipt of written confirmation of same from THE MANUFACTURER.

THE SUPPLIER acknowledge and confirm that no attempt to change the detail as mentioned herein above will constitute a proper instruction to do so unless such a request is co-signed by THE MANUFACTURER or any of it’s representatives.

THE SUPPLIER holds the Department harmless for any payment made to the above account and undertakes not to institute action against

the Department for as long as this request is adhered to.

Give and allow THE MANUFACTURER or any of it’s representatives full access to any information about the mentioned tender held by the Department of Education.

Not to withhold any information held by the Department and requested by THE MANUFACTURER.

Divulge any information regarding payments made, withhold progress of claims, etc to the MANUFACTURER.

THE SUPPLIER acknowledges and confirms that no unilateral attempt to terminate this request and authority shall be of any force or effect.

THE SUPPLIER holds the Department harmless for information given to THE MANUFACTURER and undertake not to institute action against

the Department for as long as this request is adhered to or thereafter, as a result of giving access in terms hereof.

It is important to note that clauses 1 to 4 provide that no changes to the payment arrangement shall be made without the written instruction of the Supplier. The Department produced no proof that there had been any written instructions amending payment instructions and Mr Fray conceded that it was not possible on their accounting system to ensure that once a cession was loaded that payment could only be made to the cessionary. The personnel effecting payments had to physically compare lists and by his own admission the system was flawed and open to human error and corruption.

It is common cause that many of the cessions were implemented. It is also common cause that even though some were implemented, that they were thereafter ignored for no apparent logical reason and payments were made direct to the Suppliers. The actions of the Department appeared to be arbitrary and certainly lend credence to the suspicion articulated by the Applicant, that certain of the Suppliers had bribed members of the Department in order to ensure that payments were made directly to them and not to the nominated account.

The parties managed to come to agreement regarding many of the claims and at the end of the day I was presented with ten claims in respect of which quantum was agreed upon, the only issues being whether the Department was obliged in law to pay the Applicant. It was common cause between the parties that the claims in respect of two of the Suppliers, Mhle’s for R78 102.00, and Khosi Caterers, amounting to R101,926.00, related to debts due, not by the Department of Education, but by the Department of Health. The total claims against the Department amounted to R1,140,127.00, and if the Khosi and Mhle claims are deducted, then

the total claims amounted to R960,099.00.00. The claims are as represented in the table below:

1 Mhle’s: 78,102.00 2 Silver Falls 231,015.00 3 Thabile Trade 29,758.00 4 Z&N Caterers 174,329.00 5 Noloyise Impex 84,004.00 6 Bongo Trading 19,451.00 7 Khosi Caterers 101,926.00 8 Nangamso Manala 110,857.00 9 Khulu Caterers 261,270.00 10 Changing Tides 49,415.00 960,099.00 180,028.00 Total 1,140,127.00

Although Mr Kincaid attempted to persuade me that the Department was liable for the debts of the Department of Health, as well as for its own debts, I am not persuaded that they are liable simply because they administered the scheme and paid creditors on behalf of the Department of Health. For the Deaprtment to be liable there would have had to be some legal obligation and I was not persuaded that the Applicant had proven any.

The Department per the Acting Chief Director of Education Social Support, deposed to an affidavit supporting the application to amend the common law. Although he conceded that the cessions were delivered to a senior member of the Department, Mr Fray, he contended that Mr Fray handed the cessions to someone whose identity he could not recall, and that some of them had gone missing. He mentioned that Mr Fray had been suspended shortly thereafter and only returned to his post about 18 months thereafter. He confirmed that some of the cessions were implemented but due to others being misplaced that they were not implemented and the Suppliers were paid directly. He contended that such payments were made bona fide. He argued that the common law principle should not be applicable to public bodies as their functions are carried out by numerous persons and numbers of sections within them. Tenders are issued by one section, orders are issued by another section, invoices are received by a different section and payment is effected by another section.

I am not persuaded that the incompetence of a public body constitutes a good reason to amend the common law. The court’s power to amend the common law is strictly circumscribed by inter alia sections 172, 173 and 39 of the Constitution of the Republic of South Africa, 1996. Section 172 provides for relief where laws or conduct are found to be unconstitutional.

Section 173 provides for relief where the common law is found to be wanting, and provides as follows:

“Inherent power

The Constitutional Court, Supreme Court of Appeal and High Courts have the inherent power to protect and regulate their own process,

and to develop the common law, taking into account the interests of justice.” (my emphsasis)

Section 173 has been the subject of much judicial attention and interpretation.4 Section 39 provides as follows:

“Interpretation of Bill of Rights

(1) When interpreting the Bill of Rights, a court, tribunal or forum-

(a) must promote the values that underlie an open and democratic society based on human dignity, equality and freedom;

(b) must consider international law; and

(c) may consider foreign law.

(2) When interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must

promote the spirit, purport and objects of the Bill of Rights.”

I fail to see how it would develop the common law or promote the values contained in the Bill of Rights, while taking into account the interests of justice, to provide that the department would be entitled to rely on inefficiency and incompetence to avoid obligations that would bind any other individual or legal entity in the country. To do so would in my view run contrary to the values contained in the Bill of Rights, permit unfair discrimination and reward inefficiency and corruption.

There were numerous postponements and reserved costs orders. I am satisfied that the parties engaged in sincere and bona fide attempts to resolve and limit as many issues as possible. On one occasion counsel and their instructing attorneys worked for two days at court, reconciling and comparing notes, and were successful in resolving many of the issues.

There were however two postponements that do appear to have been caused by the failure of the Applicant to be ready to proceed on those days. On the 24th August 2009 Mr Steyl was not available even though his cross examination had not been concluded. It does appear that the Applicant had to some extent been lulled into a false sense of security regarding the necessity to call him, but should have anticipated that his attendance might have been necessary. The other date when the Applicant was not ready to proceed was on the 15th January 2010. Once again the Applicant had been caught unawares, as it was only on that date that the Department’s defence

relating to the two claims against the Department of Health became apparent and was articulated. Even though the Applicant’s bona fides regarding the two postponements can not be questioned, it appears that the blame for the postponements can be laid at their door and that they should accordingly be liable for those costs.

The balance of the costs relating to reserved orders should in my view be costs in the cause. I do not believe that any one of the parties can be held to be liable for any of the other postponements. The other postponements all appear to have been necessary, seen within the context of the manner in which the trial was run, and the genuine attempts to settle the many disputes, which sometimes delivered fruits and other times left the parties unable to continue with the trial at that point in time.

The 2nd to 33rd Respondents never opposed the Applications and in effect abided the decision of the court. Under the circumstances I do not believe that any costs order should be made against them.

The following orders are accordingly made:

In case no. 768/2007 the first and twenty fourth respondents are ordered to pay the applicant the sum of Two Hundred and Thirty One Thousand and Fifteen Rand (R231 015,00), together with interest thereon at the legal rate from 6th August 2007 to date of payment, jointly and severally, the one paying the other to be absolved; In case no. 768/2007 the first and twenty seventh respondents are ordered to pay the applicant the sum of Twenty Nine Thousand Seven Hundred and Fifty Eight Rand (R29 758,00), together with interest thereon at the legal rate from 6th August 2007 to date of payment, jointly and severally, the one paying the other to be absolved; In case no. 768/2007 the first and thirty third respondents are ordered to pay the applicant the sum of One Hundred and Seventy Four Thousand Three Hundred and Twenty Nine Rand (R174 329,00), together with interest thereon at the legal rate from 6th August 2007 to date of payment, jointly and severally, the one paying the other to be absolved; In case no. 583/2007 the first and second respondents are ordered to pay the applicant the amount of One Hundred and Ten Thousand Eight Hundred and Fifty Seven Rand (R110 857,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved; In case no. 583/2007 the first and third respondents are ordered

to pay the applicant the sum of Eight Four Thousand and Four Rand (R84 004,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved; In case no. 583/2007 the first and fourth respondents are ordered to pay the applicant the sum of Nineteen Thousand Four Hundred and Fifty One Rand (R19 451,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved; In case no. 583/2007 the first and sixth respondents are ordered to pay the applicant the sum of Forty Nine Thousand Four Hundred and Fifteen Rand (R49 415,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved; In case no. 583/2007 the first and seventh respondents are ordered to pay the applicant the sum of Two Hundred and Sixty One Thousand Two Hundred and Seventy Rand (R261 207,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved; The First Respondent shall pay the Applicant’s costs in each of the applications under case nos. 352/2007, 583/2007 and 768/2007, excluding the costs occasioned by the postponements on 24th August 2009 and 15th January 2010, but inclusive of: the reserved costs of the proceedings on 26th July 2007, 4th September 2007 and 16th October 2007 in Case No. 352/2007;

the costs of the proceedings on 1st and 2nd October 2009, 11th and 13th January 2010 and 13th April 2010;

interest at the legal rate on the taxed costs, from a date 14 days after allocatur to date of payment. The Applicant is ordered to pay the First Respondent’s costs occasioned by the postponements on 24th August 2009 and 15th January 2010, including interest at the legal rate on the taxed costs, from a date 14 days after allocatur to date of payment.

In case no. 768/2007 the first and twenty fourth respondents are ordered to pay the applicant the sum of Two Hundred and Thirty One Thousand and Fifteen Rand (R231 015,00), together with interest thereon at the legal rate from 6th August 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

In case no. 768/2007 the first and twenty seventh respondents are ordered to pay the applicant the sum of Twenty Nine Thousand Seven Hundred and Fifty Eight Rand (R29 758,00), together with interest thereon at the legal rate from 6th August 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

In case no. 768/2007 the first and thirty third respondents are ordered to pay the applicant the sum of One Hundred and Seventy Four Thousand Three Hundred and Twenty Nine Rand (R174 329,00), together with interest thereon at the legal rate from 6th August 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

In case no. 583/2007 the first and second respondents are ordered to pay the applicant the amount of One Hundred and Ten Thousand Eight Hundred and Fifty Seven Rand (R110 857,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

In case no. 583/2007 the first and third respondents are ordered to pay the applicant the sum of Eight Four Thousand and Four Rand (R84 004,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

In case no. 583/2007 the first and fourth respondents are ordered to pay the applicant the sum of Nineteen Thousand Four Hundred and Fifty One Rand (R19 451,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

In case no. 583/2007 the first and sixth respondents are ordered to pay the applicant the sum of Forty Nine Thousand Four Hundred and Fifteen Rand (R49 415,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

In case no. 583/2007 the first and seventh respondents are ordered to pay the applicant the sum of Two Hundred and Sixty One Thousand Two Hundred and Seventy Rand (R261 207,00), together with interest thereon at the legal rate from 4th April 2007 to date of payment, jointly and severally, the one paying the other to be absolved;

The First Respondent shall pay the Applicant’s costs in each of the applications under case nos. 352/2007, 583/2007 and 768/2007, excluding the costs occasioned by the postponements on 24th August 2009 and 15th January 2010, but inclusive of:

the reserved costs of the proceedings on 26th July 2007, 4th September 2007 and 16th October 2007 in Case No. 352/2007;

the costs of the proceedings on 1st and 2nd October 2009, 11th and 13th January 2010 and 13th April 2010;

interest at the legal rate on the taxed costs, from a date 14 days after allocatur to date of payment.

The Applicant is ordered to pay the First Respondent’s costs occasioned by the postponements on 24th August 2009 and 15th January 2010, including interest at the legal rate on the taxed costs, from a date 14 days after allocatur to date of payment.

_____

L D KEMP

ACTING JUDGE OF THE HIGH COURT Counsel for the Applicant : Adv J

KINCAID Attorneys for the Applicant VAN DER MERWE & ASSOCIATES c/o Squires Attorneys 44 Taylor Street King William’s Town Counsel for the 1st Respondent : Adv V Notshe SC Attorneys for the Respondent State Attorney c/o Shared Legal Services Office of the Premier 32 Alexandra Road King William’s Town

_____

L D KEMP

ACTING JUDGE OF THE HIGH COURT

Counsel for the Applicant : Adv J

KINCAID

Attorneys for the Applicant

VAN DER MERWE & ASSOCIATES

c/o Squires Attorneys

44 Taylor Street

King William’s Town

Counsel for the 1st Respondent : Adv V Notshe SC

Attorneys for the Respondent

State Attorney

c/o Shared Legal Services

Office of the Premier

32 Alexandra Road

1 See Capespan (Pty) Ltd V Any Name 451 (Pty) Ltd 2008 (4) SA 510 (C) at 519 A-B: “…in the case of the second pactum, that which relates to a right which was created ab initio as a non-transferable right, the pactum is valid and enforceable against the world because the right is simply inherently incapable of being transferred by anyone; and a cession of such a right contrary to the pactum will be putative, and of no force or effect…”

2 See Sonarep (Sa) (Pty) Ltd V Motorcraft (Pty) Ltd 1981 (1) SA 889 (N) at 895F – 896C: “In the case of Sassoon Confirming and Acceptance Co (Pty) Ltd v Barclays National Bank Ltd 1974 (1) SA 641 (A) at 646A JANSEN JA stated that:"The first step in construing a contract is to determine the ordinary grammatical meaning of the words used by the parties (Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) at 834E). Very few words, however, 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. The meaning of a contract is, therefore, not necessarily determined by merely taking each individual word and applying to it one of its ordinary meanings." If the enquiry along these lines, referred to in certain authorities as a "linguistic treatment" of the agreement in question (cf Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A) at 454F), leads one to conclude that it is unambiguous then evidence of other extrinsic facts constituting what is broadly termed "surrounding

circumstances" is inadmissible. (In the Delmas case at 454 this term was said to refer to "matters which were probably present to the minds of the parties when they contracted".) As was stated by POTGIETER JA in Oatorian Properties (Pty) Ltd v Maroun 1973 (3) SA 779 (A) at 784B:"... if the language of the lease is unambiguous and is capable of being resolved satisfactorily by ordinary linguistic treatment, recourse to evidence of surrounding circumstances is unnecessary and such evidence would moreover be inadmissible. (See Richter v Bloemfontein Town Council 1922 AD 57 at 70; Delmas Milling Co Ltd v Du Plessis 1955 (3) SA 447 (A) at 454F - H.)" In such a case, however, the contract or disputed clause is still to be construed in its "contextual setting" but this concept must necessarily have a more restricted application than "surrounding circumstances". (Cf Swart en 'n Ander v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) at 201A and Streek v East London Daily Despatch (Pty) Ltd 1980 (1) SA 151 (E) at 155 and 156.) To hold otherwise would result in "surrounding circumstances" in all circumstances being introduced, which would be contrary to the authorities cited. The contextual limits in such a case are difficult to define and difficult to determine in a given case. Nevertheless, the fact that such limitation exists cannot be disputed.” (my emphsasis).

3 Mtk Saagmeule (Pty) Ltd V Killyman Estates (Pty) Ltd 1980 (3) SA 1 (A) “When a provision in a contract is on the face of it ambiguous, the Court can endeavour to determine the intention of the parties from the other provisions of the contract and the Court can also draw inferences from the proven facts indicating how the parties themselves interpreted the contract. It is true that, in general, a document cannot be interpreted by taking the latter conduct of the parties into account, but when there is an ambiguity an attempt can be made to determine the real intention of the parties from the contract itself and from evidence which indicates how the parties themselves understood the contract.” (taken from the headnote)

4 See for instance Du Plessis v Road Accident Fund 2004 (1) SA 359 (SCA) at [35] – [36]: “[35] Section 173 of the Constitution provides that the Constitutional Court, this court and the High Courts have the inherent power to develop the common law, taking into account the interests of justice. In terms of s 8 of the Constitution a Court, in order to give effect to a right in the Bill of Rights, must develop the common law to the extent that legislation does not give effect to that right. A Court should in terms of s 39(2), when developing the common law, promote the spirit, purport, and objects of the Bill of Rights. [36] In Carmichele v Minister of Safety and Security and Another (Centre for Applied Legal Studies Intervening) [2001] ZACC 22; 2001 (4) SA 938 (CC) (2002 (1) SACR 79; 2001 (10) BCLR 995 at paras [33], [34] and [39] the Constitutional Court stated that it is implicit in s 39(2) read with s 173 that where the common law as it stands is deficient in promoting the s 39(2) objectives, the courts are under a general obligation to develop it appropriately and should not hesitate to ensure that it is developed to reflect the spirit, purport and objects of the Bill of Rights. That court nevertheless warned that Judges should be mindful of the fact that the major engine for law reform should be the Legislature and not the Judiciary. In this regard it quoted with approval a passage to the effect that the Judiciary should confine itself to those incremental changes which are necessary to keep the common law in step with the dynamic and evolving fabric of our society.”

4 See for instance Du Plessis v Road Accident Fund 2004 (1) SA 359 (SCA) at [35] – [36]:

“[35] Section 173 of the Constitution provides that the Constitutional Court, this court and the High Courts have the inherent power to develop the common law, taking into account the interests of justice. In terms of s 8 of the Constitution a Court, in order to give effect to a right in the Bill of Rights, must develop the common law to the extent that legislation does not give effect to that right. A Court should in terms of s 39(2), when developing the common law, promote the spirit, purport, and objects of the Bill of Rights.

[36] In Carmichele v Minister of Safety and Security and Another (Centre for Applied Legal Studies Intervening) [2001] ZACC 22; 2001 (4) SA 938 (CC) (2002 (1) SACR 79; 2001 (10) BCLR 995 at paras [33], [34] and [39] the Constitutional Court stated that it is implicit in s 39(2) read with s 173 that where the common law as it stands is deficient in promoting the s 39(2) objectives, the courts are under a general obligation to develop it appropriately and should not hesitate to ensure that it is developed to reflect the spirit, purport and objects of the Bill of Rights. That court nevertheless warned that Judges should be mindful of the fact that the major engine for law reform should be the Legislature and not the Judiciary. In this regard it quoted with approval a passage to the effect that the Judiciary should confine itself to those incremental changes which are necessary to keep the common law in step with the dynamic and evolving fabric of our society.”