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HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

(1) REPORTABLE:  NO.

(2) OF INTEREST TO OTHER JUDGES:  NO

(3) REVISED.

DATE: 10 DECEMBER 2021

                                                                                          CASE NO: 33182/2021

 

In the matter between:

UNIVERSAL COAL DEVELOPMENT (PTY) LTD                                Applicant

and

MINERAL RESOURCES DEVELOPMENT (PTY) LTD                      Respondent

                                     

J U D G M E N T

This matter has been heard in open court and disposed of in the terms of the Directives of the Judge President of this Division.  The judgment and order are accordingly published and distributed electronically.

DAVIS, J

[1]           Introduction

The dispute in this extensive opposed motion is whether a contract for the operation of a coal processing plant was for a fixed period of 96 months or whether its duration was only until coal reserves at a certain colliery became depleted?

[2]           The parties

2.1         The applicant is Universal Coal Development (Pty) Ltd (Universal).  It had obtained a contract to deliver crushed, washed and screened coal to Eskom, based on a proposal made to Eskom jointly with Stefanutti Stocks Mining Services (SSMA).

2.2         In order to meet its obligations to Eskom, the applicant contracted with the respondent, Mineral Resource Development (Pty) Ltd (MRD) to design, construct and commission a washing, crushing and screening plant (the Plant) and thereafter to operate the Plant on behalf of Universal in order to process the coal that was mined by SSMS.

[3]           The relief sought

3.1         The applicant seeks the following relief:

“2.     Pending the final determination of arbitration proceedings to be instituted by the applicant against the respondent within 30 days from date of this order (the arbitration proceedings), directing the respondent to hand over possession, operation and control of the 18.8 MJ/Kg CV DMS washing, crushing and screening Plant (the Plant) located at Kangala Colliery, near Delmas, Mpumalanga.

3.      Pending the final determination of the arbitration proceedings:

3.1        Directing the respondent to attend with the applicant to a joint inspection of the Plant within 14 calendar days of this order, on a date nominated by the respondent, provided that the respondent shall give 48 Hours’  written notice to the applicant of the date and time of such inspection, such notice to be delivered to the applicant at jferrazcardoso@ensafrica.com and

3.2        Within 28 days of the completion of the joint inspection of the Plant, directing the respondent to submit a report on the condition of the Plant identifying maintenance works (excluding routine maintenance works and the correction of defects), replacements and other works required to be carried out in accordance with the requirements contained in the Operation and Maintenance Plan, following completion of the contract”.

3.2         The respondent counter-applied for the following:

“Pending the publication of the final award in the arbitration proceedings to which reference is made in paragraph 2 of the notice of motion in the main application, Universal is ordered to comply will all its obligations under the Contract”.

3.3         Both parties claim costs against the other.

[4]           Final relief?

4.1         The applicant claimed that the relief claimed is only interim and therefore that the court need only “make a determination on prima facie basis”, in the words of the applicant’s counsel.

4.2         On the other hand, the respondent claims that the nature of the relief results in it being final in effect and therefore that the higher threshold for final relief as referred to in Stellenbosch Farmers Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 234 (C) at 235 E – F should apply.

4.3         Our courts have held that, in order to determine the nature of the relief, regard should be had to the substance rather than the form of the relief.  See BHT Water Treatment (Pty) Ltd v Leslie and Another 1993 (1) SA 47 (W) at 55 D – E.

4.4         It appears that the question of the duration of the contract might be the same dispute which may end up before the arbitrator, who might come to a different conclusion than this court.  In the circumstances where, despite the respondent’s complaint about the fact that arbitration proceedings have not yet been launched, both parties have conceded that the dispute is, by reason of the terms of the contract between them, arbitrable, then it would be a wholly unsatisfactory situation to have both court and an arbitrator finally decide the same question.  If this court’s decision is, as I then understand both parties’ contentions, not binding on the arbitrator, then the relief is in that sense not “final”.  See Cipla Agrimeal (Pty) Ltd v Merck Sahrp Dohme Corporation and Others 2018 (6) SA 440 (SCA) at paragraph 47.

4.5         On a practical level, the reasons advanced by the respondent why a (temporary) restoration of the Plant to its owner, Universal, would be final in effect, are that “it is unlikely [that the arbitrator would] direct that MRD be restored to its possession, operation and control of the Plant” and that “the manner in which risk is allocated by the Contract” might render it impractical “for an arbitral tribunal, in due course, to make any award that might reverse those consequences” (to quote from the Heads of argument filed on behalf of the respondent).  The question of what an arbitrator might award or not appears to be either argumentative or speculative. The issue of the risk can be catered for in the interim (by way, for example of the indemnity tendered by the application) and the impracticality complained of actually means nothing more than that a reversal might be difficult or costly, but by no means impossible.   

4.6         I am therefore not convinced that the relief is final in effect.  It shall therefore be treated as interim in nature.

[5]            The contractual dispute

5.1         In simple terms, the applicant claims that the coal reserves in respect of which the contract had been entered into have been depleted, and therefore the contract has terminated. The respondent contends that the contract terms provide for a contract period of 96 months and that this period is to run its course. Despite the admitted depletion of the coal reserves, coal could from time to time be sourced from other collieries, which can still be crushed, washed and screened, so the respondent says.  In the meantime, the applicant should continue to pay the respondent the agreed fixed monthly contract price until the return of the Plant to the applicant, its owner.

5.2         As can be seen form the above, very little is in dispute on a factual level.  Even in respect of the sporadic possibility of coal being sourced from other collieries about which there was some debate, the parties have at the hearing of the matter confirmed that the Plant has, for all intents and purposes, been sitting idle since May 2021.

5.3         Before dealing with admissible evidence relating to the context within which the contract and its terms should be interpreted, it is apposite to refer to the various clauses in the contract on which the parties rely:

5.3.1    Clause 1.1.53 of the contract, which is in form of a FIDIC Gold Book contract for “Design, Build and Operate” projects, with standard clauses and terms, to be completed to suit a specific project, defines “Operation Service” as follows: “a period of 96 months performance compliance operations commencing on the issue of a Commissioning Certificate and terminating on the Plant Manager issuing a certificate of completion of the performance compliance operations as more fully detailed in the Employer’s Requirements”.

5.3.2    The “contract date” pertinent to clause 9.2 “Time for Completion of Design, Build and Operate”, provides as follows:

“Time for completion of Design, Build and Operate - 110 MONTHS

Milestones

Period one DESIGN PHASE                       2.5 Months

Period Two BUILD PHASE                        11.5 Months

Period Three PLANT OPERATION             96 Months”.

5.3.3    The “contract data” relative to clause 8.2 provides that the “Period of the Operation Service” is “Total = 96 months”.

5.3.4    The “contract data” relative to clause 8.7 “handback requirements” contains use of the wording “Residual Life of the plan required after the initial 96 months” before it goes on the deal with the 5 year that the applicant would still have a workable Plant after the expiry of its contract with the respondent.

5.3.5    The duration of the applicant’s contract of supply with Eskom provides as follows:

“The terms of this agreement shall be for a period (“Delivery Period”) commencing on the commencement date and expiry on the later of: 8.1 a period of eight years … (“Initial period”); or 8.2 when the total quantity of Contract Coal, being 285 450 000 (two hundred and eighty five million four hundred and fifty thousand) GJ (“the Total Energy Quantity”), being approximately 16 500.  Tons … has been delivered to Eskom in accordance with this Agreement, unless terminated earlier in terms of this Agreement and provided further that the Delivery Period shall be deemed to be expired earlier than the Initial Period where the supplier [being Universal] has, on request of Eskom increased the quality of coal to be supplied to Eskom such that the Coal Reserve will have been totally depleted prior to the expiry of the Initial Period”.

5.3.6    The contract was preceded by a proposal made by the respondent to the applicant. The contract records that this proposal has been accepted by the applicant. Clause 1.5 of the Conditions of Contract between the applicant and the respondent, incorporates this proposal by reference.  This proposal has as its stated purpose the following: “MRD wishes to take this opportunity to Thank Universal Coal for being able to submit a proposal for the supply and operation of a processing solution for its Kangala Project.  MRD worked together with Stefanutti & Stocks to deliver a comprehensive practical plan to execute the Kangala Coal project for and on behalf of Universal PLC.  MRD is responsible of the processing solutions … Stefanutti & Stocks is responsible for the mining … Universal Coal will deliver coal to Eskom only, from its Kangala Coal Project … MRD employed well known technology into the design capable to handle the complexities of the parting material in the Kangala reserve.  MRD’s metallurgical operations and process design experience will deliver a fit for purpose processing plant capable of procession at least 200 000 tonnes per month from the ROM feed from the Kangala mine and deliver a product meeting the requirements specified by Eskom …”.

5.3.7    The covering page of the Contract states that it is for the “Design, Construction, Commissioning, Operation and Maintenance of an 18.8 MJ/Kg CV OMS Washing, Crushing and Screening Plant at the Kangala Coal Mine”.

5.3.8    Section 3 of the Contract dealing with the “Employer’s Requirements”, states that the design criteria for the Plant is specified in the “Universal Coal Eskom Term Sheet”.  The capacity of the Plant is specified to accommodate a “Total Capacity Product Rate to Eskom of 2 627 300 tons per annum”.  The key project objective was defined to “process 160 000 tons per month of a combination of BC1 and BC2 seam coal for delivery to Eskom, Meeting the Eskom product specifications as well as have a capacity to process B(ABO) and M seam coal via a OMS plant at a minimum rate of 58 000 Rom tons per month” (it appears that the reference to the Plant as a DMS or OMS plant is used interchangeably, but nothing turns on this for purposes of this application, as there is only one plant forming the subject matter of the dispute).

5.4         The applicant’s case is that the contract, either on a proper interpretation thereof or on the basis of a tacit term to be read therein, should be read and interpreted in conjunction with or in the context of its agreement with Eskom, as being a “back-to-back” agreement.  The consequence, the applicant avers, is that the contract period would be 96 months or until the Kangala coal reserves are depleted, whichever comes first

[6]            Interpretation of contracts

6.1         Since the seminal judgment of Wallis JA in Natal Joint Municipal  Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA), followed by the same learned judge of appeal in Bothma-Batho Trasport (Edms)Bpk v S Bothma & Seun Transport (Edms)Bpk 2014 (2) SA 494 (SCA), the state of our law regarding the method of interpreting contracts is the following: “whilst the starting point remains the words of the document, which are the only relevant medium through which the parties have expressed their contractual intentions, the process of interpretation does not stop at a perceived literal meaning of those words, but considers them in the light of all relevant and admissible context, including the circumstances in which the document came into being.  The former distinction between permissible background and surrounding circumstances, never very clear, has fallen away.  Interpretation is no longer a process that occurs in stages but is essentially a unitary exercise”.  (paragraph 10 -12 of Bothma-Batho and see also the quotations referred to with approval in footnote 7 of that judgment at 500).

6.2         Reliance was also placed in argument on the following dictum of Unterhalter AJA in Capitec Bank Holdings Ltd and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others (470/2020) [2021] ZASCA 99 (09 July 2021), explaining Natal Joint Municipal Pension Fund v Endumeni (above) as follows: “the meaning of a contested terms of a contract (a provision in statute) is properly understood not simply by selecting standard definitions of particular words, often taken from dictionaries, but by understanding the words and sentences that comprise the contested term as they fit into the larger structure of the agreement, its context and purpose”.

[7]            Discussion

7.1         Although the contract under consideration did not incorporate terms “taken from dictionaries”, it suffers from the same malady of similar contracts where a standard form of a contract is used, intended to cater for a wide variety of circumstances, and then the variables are simply completed or inserted without a proper redrafting.  The result is exemplified by clause 1.1.5.3 quoted above which is scarcely more than a jumble of terms flung together in a sentence.

7.2         Despite the references in the contract to an operational period of 96 months, the respondent cannot, despite its protestations, deny that the principal object of the agreement was to wash, screen and supply coal to Eskom.  Once this fact stands, as I find it must, Eskom’s requirements in respect of that coal, its specifications and source, in fact becomes the applicant’s requirements vis-a-vis the respondent as operator of the Plant.  This then, confirms the applicant’s contention that the two contracts, the one being the Universal/Eskom contract and the other being the Universal/MRD contract, were back-to-back contracts. This is further confirmed by the fact that the mining contract with SSMS, was for the self-same coal reserves.

7.3         Apart from mere contentions, there are particular specifics, indicating that this was indeed the case as far as the respondent was concerned:

-       The design specifications of the Plant to be designed, built and commissioned by the respondent was specifically to produce coal with the specific requirements of Eskom in mind and with the capacity to cater for the Eskom-required rate and volume of tons per month (the 18.8 MJ/Kg at 160 000 tins of a specific grade and 58 000 Rom tons per month).

-       The calculations made by the respondent itself of its total operational cost of R 287, 715, 808,00 was based on the ROM coal from the Kangala Mine (being the mine at which Universal had contracted SSMS to do the open cast mining) of 19, 450, 856 tonnes.  This lastmentioned figure was, importantly, the estimated quantity of coal available from the Kangala coal reserve.   The Employers Requirements section in the contract reflects that the total ROM from Kangala was estimated at 21, 332, 386 tonnes of which 2, 918, 353 tonnes is discarded during the crushing, washing and screening process.  The net result is that the respondent calculated its costs based on the Kangala coal reserves, and not on a time based calculation of 96 months.

-       The 96 months was simply a figure arrived at after calculating the volume of tonnes in the available Kangala reserve, delivered at the monthly required rate to Eskom over time.  The coal reserves therefore dictated the calculation and thereby the period of the contract, not the other way round.

7.4         If the above is not the end of the matter, evidence emanating from the respondent, produced as part of its counter-application (already initially drafted as part of proceedings relating to section 34 of the Prevention and Combating of Corrupt Activities Act 12 of 2004) contains the following statement on oath “The Coal at Kangala is mined by means of open pit mining operations.  Each seam displays an individual quality profile.  The quality profile of the seam will determine the appropriate processing methodology to be used on the extracted coal in order to increase its quality, to meat Eskom’s requirements.  The contract was concluded (and indeed both the C & S and OMS plants were designed and constructed) on the basis of a target CV of 18.8 MJ/Kg for the blended C & S and OMS coal (“end product”).  As mentioned above, Eskom’s requirements changed over time and the plant (and MRD’s processes) were varied in an effort to satisfy Eskom’s requirements”.  I agree with the applicant’s assertions that the above confirms that the contract with the respondent was concluded to meet Eskom’s requirements, which were, in turn, the applicant’s obligations to Eskom and which related solely to the Kangala Mine and its coal reserves.

7.5         Much was made by the respondent of the so-called “Brakfontein Project”.  This was done in order to bolster the argument that, insofar the contract envisaged that coal might be sourced from the Brakfontein mine, this would extended the operations beyond the depletion of the Kangala coal reserves (and until the completion of the 96 months).  The papers (but not the contract itself) indeed make mention of the processing of coal from Brakfontein, but the calculations referred to in paragraph 7.3 above, were not based thereon.  To the contrary, the respondent’s A3 full-colour proposal sheet (which is incidentally labelled “Brakfontein Coal Mine Design”) has as its most prominent feature, running across the width of the page, details of 6 steps (with colour photographs) as follows: “(1) Reserve (with a picture of a lump of coal) 10 MC → (2) Mining; 1.44 mpa ROM → (3) 23 KM Transport; → (4) Processing Kangala Plant; Products → (5) Transport → (6) Export; Eskom”. The operating costs were then depicted as having been calculated on the processing of the tonnage of the Kangala coal reserves along these six steps until it reached Eskom.

7.6         As already pointed out above, the contract itself does not refer to Brakfontein specifically.  At best, it includes as a secondary objective, the consideration of the addition of a re-wash section to the primary OMS section in order to process an additional 1 400 000 tons per annum of “Brakfontein material” via the wash Plant “commencing in a time window of 18 months after the Kangala project was commissioned.  The objective was to design in order to have the minimum disruption to the current plant system when the incorporation of the Brakfontein project happens, and with the minimum capital cost implications to the Kangala Project”.

7.7         In the end, the Plant was designed in a manner that it could be upgraded to accommodate the processing of coal from Brakfontein, but the Brakfontein Project, which is owned or partially owned by an associated company to the applicant, materialised in the second half of 2019 by way of processing at a separate Plant located at Brakfontein, which is operated by a separate entity to this litigation, Entlearolo.  Apart from an isolated incident (or incidents) “Brakfontein material” was not proceeded at the Plant in question.

7.8         Factually also, Eskom increased its requirements and the upgrade to the Plant was done to meet that increase.  The result was that the Kangala coal reserves were depleted much sooner than anticipated.  The anticipated period inserted in the agreement, so the applicant contends, was, as already stated, calculated on the initial proposed rate at which the Kangala coal reserve could be mined and processed, rounded off to 8 years (96 months).  This needed to be done because the standard wording of the FIDIC Gold contract required a time period, rather that the term “when the coal reserve at Kangala is depleted”.  This last-mentioned term features in the Universal/Eskom agreement as referred to in paragraph 5.3.5 above. The conclusion I reach is that the contract between the applicant and the respondent should be interpreted as containing a similar term.

7.9         There are other peripheral issues which, due to the fact that an arbitration is to follow, I deem inappropriate to canvass. Suffice to say, I find that there is a prima facie case (even if open to doubt) that the contract included as tacit term or by way of interpretation that all the time clauses in the contract relating to operation of the Plant should be read to mean “until the depletion of the Kangala coal reserves or 96 months, whichever comes first”.

[8]            The counter-application

8.1         As can be seen form the relief quoted above, the counter-application is couched in the widest possible terms.  The relief itself, had it been a contractual term, would in all probability have been void for vagueness, it is so wide.

8.2         It appears, when the papers are scrutinised for indications of particularity, that the respondent actually seeks payment of certain invoices raised from time to time and for various reasons.

8.3         There are numerous disputes and discrepancies in respect of these invoices, which include in some instances the monthly fixed costs of operating and maintaining the Plant.

8.4         Having regard to the factual disputes pertaining to the invoices I am unable to even craft an order which would not suffer from the same vagueness as that contained in the counter-application.  These aspects would be best suited to either an action or inclusion in the arbitration proceedings.  In any event, were the arbitration to come to a different conclusion than this court, the monthly fixed costs would then have to be revisited.

[9]           Although the relief sought by the applicant is actually in the form of a declaration of a contractual term on an interim basis, the applicant had, because of the interim nature, canvassed the remainder of the requirements as for an interim interdict.  These are an apprehension of irreparable harm, balance of convenience and absence of an alternate remedy.  The simple fact of the matter is that once it has been established that the contract (and the period of operation of the Plant by the respondent) has come to an end when the Kangala coal reserves were depleted, the return of the Plant should follow as a matter of course.  I have however, carefully considered the remaining requirements for an interim interdict and I find that the applicant has sufficiently satisfied them. The applicant has also, in reply, confirmed that it would furnish the respondent with an indemnity against the risk of liability pending the decision of the arbitrator and would no longer pursue the relief sought in prayer 3 of its notice of motion.

[10]        Costs

Although the nature of the order, as already pointed out, is interim pending the conclusion of the arbitration proceedings, the arbitrator would not revisit the issue of costs.  That has to be determined at this juncture.  I find no cogent reason why the customary principle that costs should follow the event, should not apply.

[11]        Order

1.         Pending the final determination of arbitration proceedings to be instituted by the applicant against the respondent within 40 days from date of this order, the respondent is directed to hand over possession, operation and control of the 18.8 MJ/Kg CV DMS washing, crushing and screening Plant (the Plant) located at Kangala Colliery, near Delmas, Mpumalanga to the applicant within 24 hours from service of this order on it.

2.         The respondent shall pay the applicant’s costs, including the costs of two counsel.

 

                                                                                              

                                                                                                 N DAVIS

                                                                                   Judge of the High Court

                                                                         Gauteng Division, Pretoria

 

 

Date of Hearing: 9 September 2021

Judgment delivered: 10 December 2021 

 

APPEARANCES:

For the Applicant:                                Adv J P V McNally SC together with

Adv G Herholtd

Attorney for the Applicant:                   Edward Nathan Sonnenbergs Inc, Sandton

c/o Gerhard Botha & Partnets, Pretoria

 

For the Respondent:                              Adv L I Schafer

Attorneys for the Respondent:              Herbert Smith Freehills, Rosebank

c/o Jasper van der Westhuizen & Bodenstein Inc, Pretoria

 

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