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IN THE HIGH COURT OF SOUTH AFRICA

GAUTENG LOCAL DIVISION, JOHANNESBURG

CASE NO: A5013/2017

Not reportable

Not of interest to other judges

Revised.

18/4/2018

In the matter between:

TRANSNET SOC LIMITED                                                                                     Appellant

and

INNOVENT RENTAL &

ASSET MANAGEMENT SOLUTIONS (PTY) LTD                                             Respondent

 

JUDGMENT

 

NICHOLLS J:  (MOSHIDI J AND COPPIN J CONCURRING)

[1] The dispute which is the subject matter of this appeal arises out of an agreement concluded by the appellant, Transnet SOC Limited (Transnet),  and the respondent, Innovent Rental & Asset Management  Solutions (Pty) Ltd (Innovent), in terms of which certain equipment was leased by Transnet from Innovent. The equipment consisted of component parts of an integrated security system that was designed to track the movement of security guards patrolling and guarding Transnet’s rail network at five specified sites. It was apparently leased by Transnet in order to combat the on-going problem of cable theft, and the suspected collusion of security guards.

[2] In its particulars of claim, Innovent claimed payment of the sum of R5 413 615.94 (five million four hundred and thirteen thousand six hundred and fifteen rand and ninety four cents) based on an alleged breach of the lease agreement. It is claimed that Transnet returned the security equipment, in contravention of the agreement, without it having been decommissioned and in a state of disrepair. At the commencement of the trial an order was made in terms of Rule 33(4), with the agreement of the parties, that the merits of the matter be heard separately from quantum. This appeal accordingly only concerns the merits.

[3] Transnet appeals against the judgment of the court a quo which ordered it to pay to Innovent such residual value, as could be proven at trial, in respect of the leased equipment which was returned to Innovent without being de-commissioned.  Leave to appeal was refused by the court a quo (per Keightley J). This appeal is before court with the leave of the Supreme Court of Appeal.

[4] The court a quo was required to determine several issues - a special plea of prescription by Transnet; whether the equipment was in good working order and condition when it was returned to Innovent; and whether the equipment fell within the ambit of clause 11.2 of the lease agreement, namely whether the decommissioning of the equipment was required under the agreement or not. Innovent claimed that  Transnet had only partially complied with the agreement in that “it failed to return to the Plaintiff some of the equipment… as required in terms of the Agreement, and instead returned such equipment without it having been decommissioned and in a state of such disrepair that it rendered  the equipment completely and utterly useless.” As a result of this alleged breach Innovent claimed, and was granted by the court a quo, payment of an amount equal to the residual value of that equipment.

[5] Two issues have been identified for determination on appeal. Firstly, whether the equipment was required to be de-commissioned by Transnet prior to being returned to Innovent. This requires an interpretation of the relevant clauses of the agreement reached between the parties. Secondly, whether Innovent’s claim in respect of the equipment has prescribed. Should this court find in favour of Transnet on the first aspect, it is accepted that this will render the prescription issue irrelevant.

[6] The background facts are undisputed. In March 2005 the parties concluded a master rental agreement for the lease of equipment. Pursuant thereto, five separate rental schedules were concluded, each for a five year term. This took place over the period 8 May 2005 to 1 August 2006. Transnet was contractually obliged to return the equipment at the expiry of each individual rental schedule.

[7] The returns were governed by clause 11 of the master rental agreement, the relevant terms of which provide:

“11.1 User shall, on termination of this agreement, return the equipment in good working order and condition, fair wear and tear excluded, together with all applicable documents, licenses and insurance policies to Hirer’s nominated address at User’s cost and expense…

11.2 The equipment shall not be regarded as returned unless (where applicable) it is decommissioned in accordance with the original manufacturer’s specifications and appropriate certificates have been supplied. (my underlining)

11.3 If it is not possible for User to return equipment in accordance with the provisions of this agreement then the user must immediately at the expiration or earlier termination of the renting of the equipment in terms of this agreement and at the User’s cost deliver to Hirer replacement equipment approved by Hirer and of a similar nature to the equipment provided that Hirer may in its sole discretion accept payment of an amount equal to the Residual Value of the equipment instead of delivery of such replacement equipment…..

[8] It is common cause that the rental schedules have become terminated through the effluxion of time. Transnet elected not to renew the lease and returned the equipment. It is also common cause that the returned equipment was not decommissioned and no certificates were provided. Innovent contends that the failure to do so and to provide a certificate in support thereof, constitutes a breach of Transnet’s obligations in terms of clause 11.2. The equipment is therefore deemed as ‘not returned’ and Transnet is liable for the payment of the residual value as provided for in clause 11.3, and as ordered by the court a quo.

[9] Pivotal to this appeal is the interpretation of clause 11.2. Two intertwined issues arise in this respect. The first is what is meant by the words ‘where applicable’ and the second is that the decommissioning had to be conducted ‘in accordance with the original manufacturer’s specifications’. The question to be determined by this court is whether Transnet was contractually obliged to decommission the equipment according to the said specifications and if its failure to do so amounts to a breach of the agreement. In other words was decommissioning ‘applicable’ in the circumstances of this case.

[10] Ms Coetzee (Coetzee), the Strategic Projects  Manager for  Innovent, testified as to the business model of Innovent. A client such as Transnet, who required equipment, would approach Innovent with its own specific needs. Innovent would then purchase the equipment identified by the client and secure the finance for the purchase price, or a portion thereof. A lease agreement would be concluded with the client. Innovent would have no dealings whatsoever with the supplier except payment of the invoice issued. Innovent would only recover its residual investment and make a profit after the expiry of the original lease when it entered into a secondary lease or on-sold the equipment. Once the equipment was returned, it would be completely refurbished by Innovent so it could be on-sold or re-leased in perfect working order. As stated by Ms Coetzee “Innovent financed the equipment in order to sell the full complete decommissioned system at the expiry of the contract.”

[11] It appears from the cross examination of Coetzee that Transnet requested further particulars for  trial to which Innovent responded. For some reason these do not form part of the record before us. The answers given by Innovent, as put to Ms Coetzee, is that no individual item of equipment was tested or inspected to ascertain if it was in working order.  Ms Coetzee testified that she herself, who on her own version has no technical expertise whatsoever, made a visual inspection of the equipment and determined whether it was damaged or not. She confirmed that each item of the equipment had to be decommissioned in accordance with clause 11. 2 of the agreement.

[12] In response to the request for further particulars that Innovent provide all documentation relevant to the decommissioning process, it is stated that all such documentation was provided to Transnet at the time of the installation of the equipment and such information is not in Innovent’s possession. That the decommissioning documentation was provided to Transnet is patently incorrect. The  evidence led on behalf of Transnet is to the contrary. Mrs Coetzee confirmed that Mobitrack was the original manufacturer and that Innovent was not in possession of the original manufacturer’s specifications. She merely “assumed” that Mobitrack provided these to Transnet with all other documentation. There was no attempt on Innovent’s part to ascertain whether these specifications existed.

[13] As regards whether decommissioning was ‘applicable’ Ms Coetzee suggested that a distinction should be made between ‘ordinary’ equipment and specialised equipment, such as the security system in question. In respect of the former, decommissioning would not be applicable but it would be in the latter. According to Ms Coetzee ‘in accordance with the original manufacturer’s specifications’ means that the equipment “must be in a state like when it was sold  and made by the manufacturer and installed on Transnet’s premises”.

[14] Mr Thomas, the Senior Manager responsible for strategic sourcing  at Transnet testified that Transnet had partnered with Ingoma Communications for purposes of sourcing the security system, who in turn relied on Mobitrack for the supply and installation of the systems. Due to lack of skill on the part of Ingoma, reliance was placed on two Mobitrack resources, Armand Du Toit (du Toit) and Lucas Fourie, for the technical design, installation, configuration and commissioning of the system. Thomas stated that if they had known how decommissioning would take place or if they had a manual specifying this, they would have followed that process. Instead, what was done was that they approached the original manufacturer and installer, Du Toit, to go to the site, remove the equipment and return it to Innovent.

[15] Unfortunately the transcript of du Toit’s evidence has considerable gaps and, in the large part, had to be reconstructed. The reconstructed record before us is agreed between the parties. Du Toit’s evidence is that he had built the security system from scratch while subcontracted to Mobitrack. (Initially he stated it was Kavicomm but the confusion arose because both companies have the same sole shareholder.) Du Toit said that although he requested Ingoma to provide him with full specifications, he did not receive any specifications. He testified that he personally designed the system, manufactured it with Kavicomm, and installed it.  Du Toit states in the reconstructed record “The manuals that I wrote did not include decommissioning as I was never told that it was a requirement”.

[16] The court a quo accepted the evidence of Ms Coetzee and looked at the business model of Innovent in support of this interpretation. The structure of these transactions meant that profit would only be made at the end of the lease period when the equipment was returned to Innovent who would re-sell or re-lease it. Bearing this in mind, the court a quo found that Innovent required decommissioning to recoup the investment it had made in the equipment - without same, the equipment could not be on-sold. For this purpose it had to be restored to the manufacturer’s original specifications with proof thereof. The finding of the court a quo was that the only sensible interpretation in the context of this business model was that decommissioning would be applicable in these circumstances and that Transnet bore the obligation to provide for the decommissioning. 

[19] How to interpret contracts has occupied judicial minds for decades. A delicate balance has to be found between the literal meaning of the words, the context in which they are used, and the result intended to be achieved. Initially courts adopted the view that if the words were clear and unambiguous, then they had to be considered independently; only if there was ambiguity did a court have recourse to context.[1] The present day approach is a more unitary one requiring a consideration of the language used as well as the context and the purpose intended by the parties.  This has been encapsulated in the much quoted Natal Joint Municipal Pension Fund v Endumeni Municipality[2] where Wallis JA stated:

“The approach to be adopted when interpreting the present state of the law can be expressed as follows. Interpretation is the process of attributing meaning to the word used in a document, be it legislation, some other statutory instrument, or contract, having regard to the context provided by reading the particular provision or provisions in the light of the document as a whole and the circumstances attendant upon its coming into existence. Whatever the nature of the document, consideration must be given to the language used in the light of the ordinary rules of grammar and syntax; the context in which the provision appears; the apparent purpose to which it is directed and the material known to those responsible for its production. Where more than one meaning is possible each possibility must be weighed in the light of all these factors. The process is objective not subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusiness like results or undermines the apparent purpose of the document.”

[20] However, this does not mean interpretation is an entirely objective process. It is now accepted that the written word cannot stand independent of what the parties meant to convey.[3]  While the ordinary grammatical meaning of the words is the inevitable starting point, as has been repeatedly stated, context is everything. A court cannot look only at the perceived literal meaning of the words devoid of the surrounding circumstances in which the document came into being.[4]

[21] Generally a commercially sensible interpretation will be favoured. Our courts have identified situations where the words are used in a technical sense and a literal construction would run contrary to sound commercial principles and would produce an unrealistic and generally unanticipated result.[5] In principle the purpose of interpreting a contract is to ascertain the common intention of the contractants as expressed by their words or conduct. Notwithstanding the above principles, where possible, effect must be given to every word and the words must be interpreted in the context of the entire contract.[6] Simply stated the purpose of interpretation is to ascertain the common intention of the parties as expressed by their words.

[21] I now turn to the phrases for consideration by this court. ‘Applicable’ is defined as “capable of or suitable for being applied” in the Miriam Webster Dictionary.[7] The Cambridge Dictionary and the Oxford Dictionary give the business meaning of ‘applicable’ as “affecting or relating to someone or something”.[8] The Oxford Dictionary[9] definition of decommission is “to take (a ship, aeroplane, etc) out of service; to close down (esp a nuclear reactor)”. Implicit in this definition, in my view, is an assumption of some technical expertise.

[22] The respondent’s counsel argued that ‘to decommission’ meant nothing more than ‘to uninstall’. After uninstalling the equipment, Du Toit should have merely provided a certificate confirming that it works as it should in order that it could be on-sold. I am not persuaded that this is the extent of what decommissioning entails. In my view it must mean more than the mere uninstalling of a system and returning it in good order as referred to in clause 11.1. If this had been the case there would have been no suggestion by du Toit that decommissioning would have been included in the manual he wrote, if requested. Nor would Thomas have testified that if they had known how to decommission, Transnet would have done so. On this version all that had been omitted was the provision of the certificate – Transnet had procured the services of du Toit, the person who made the system, to remove it and return it to Innovent.

[23] What the respondent’s interpretation does not take into consideration is that there were no manufacturer’s specifications in existence. It was for this reason that it was not possible to provide a certificate as required by clause 11.2.

[24] Innovent argued that decommissioning was so integral to their business model that, in terms of clause 11.2, unless it was complied with, the equipment may be deemed as not returned with the financial consequences provided for in clause 11.3. While this may, at first blush, seem a compelling argument, clause 11.2 has to be read in its totality. It must be ascertained whether decommissioning was applicable. As the Supreme Court of Appeal cautioned in Endumeni[10]

“Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used.”

[25] The more sensible interpretation of clause 11.2 is that more is needed to be done than merely returning the equipment in good order and repair as contemplated in section 11.1. If the equipment required decommissioning, namely where decommissioning was applicable, Transnet would have to supply the appropriate certificates that those items which had to be decommissioned had in fact been done so in accordance with original manufacturer’s specifications.

[25] Insofar as it is suggested that the words ‘where applicable’ intended to draw a distinction between items of a technical and non-technical nature, regard must be had to the fact that although the words are in parenthesis, they should not be interpreted  in isolation or disjunctively. They must be interpreted in the context of the whole sentence. I cannot accept  Innovent’s  contention that  ‘where applicable’ can have no other meaning than simply that those parts that are obviously incapable of being restored to their original setting, such as manuals and orange store boxes, are excluded. In other words, decommissioning  was applicable in respect of all equipment except  where no technical know-how was required to uninstall the equipment as stated by Coetzee.

[26] The first observation to make is that Ms Coetzee’s interpretation of the agreement is irrelevant. The Supreme Court of Appeal has held that “interpretation is a matter of law and not of fact and, accordingly, interpretation is a matter for the court and not for the witnesses.”[11]

[28] Where there are no original manufacturer’s specifications in existence, or where the original manufacturer has made no provision for decommissioning, it is difficult to understand how Transnet could have complied with section 11.2, even if it had wanted to. Decommissioning was not possible in such circumstances because Transnet was unable to comply with the decommissioning requirements as set out in the agreement. The parties could not have intended an impossibility. Thus they could not have intended that there be decommissioning in terms of the original manufacturers’ specifications when same do not exist. In such circumstances decommissioning is ‘not applicable’ to the equipment.

[29] On Innovent’s interpretation there is a clear contractual obligation created by clause 11.2 for Transnet to commission a system to be delivered and installed with the appropriate specifications for decommissioning. To deny such a contractual obligation would be opportunistic, it is contended. In my view this would be reading too much into the agreement. There is nothing in clause 11 to suggest that Transnet was under an obligation to provide specifications for decommissioning. If this had been the intended outcome, the agreement would have stated this is in so many words. Instead the words ‘where applicable’ were used which are indicative that the parties acknowledge that there may be situations where decommissioning cannot be performed for any number of reasons, including the non-existence of the original manufacturers’ specifications.

[29] Accordingly, I am of the view that Innovent has failed to discharge the onus that it bears to prove its case on a balance of probabilities. In my view the court a quo should have found absolution from the instance.

[30] The appeal must accordingly succeed on this ground alone. In view of this finding it is unnecessary to deal with the question of whether Innovent’s claim has prescribed. As regards costs, both parties agreed that the costs of two counsel should be awarded.

In the result I make the following order.

1. The appeal is upheld with costs, including the costs of two counsel;

2. The order of the court a quo is set aside and replaced with the following order:

2.1. “The Defendant is absolved from the instance;

2.2. The Plaintiff is to pay the costs.”

 

____________________________
C. H. NICHOLLS
JUDGE OF THE HIGH COURT

GAUTENG LOCAL DIVISION, JOHANNESBURG

 

____________________________
S. MOSHIDI
JUDGE OF THE HIGH COURT

GAUTENG LOCAL DIVISION, JOHANNESBURG

 

I agree

 

____________________________

P. COPPIN
JUDGE OF THE HIGH COURT

GAUTENG LOCAL DIVISION, JOHANNESBURG

 

 

Appearances

Counsel for the Appellant :  Adv. R Bedhesi

:  Adv. Lapan

Instructing Attorneys :  Poswa Incorporated

Counsel for the Respondent :  Adv. ARG Mundell

:  Adv. GP van Rhyn

:  Otto Krause Inc. Attorneys

Date of hearing :  21 February 2018

Date of judgment :  18 April 2018

 

[1] Hansen, Schrader & CO v De Crasperi 1903 TH 100 at 103; Union Government v Smith 1935 AD 232 at 241

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