REPORTABLE
CASE NO.: SA 9/2009
IN
THE SUPREME COURT OF NAMIBIA
In
the matter between:
|
SOUTHLINE
RETAIL CENTRE CC
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APPELLANT
|
|
and
|
|
|
BP NAMIBIA
(PTY) LTD
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RESPONDENT
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CORAM:
Strydom AJA, Mtambanengwe AJA et O’Regan AJA
Heard
on: 15/10/2010
Delivered
on: 09/06/2011
APPEAL
JUDGMENT
O’REGAN
AJA:
BP
Namibia (Pty) Ltd (“BP”), the respondent, obtained an
order in the High Court evicting Southline Retail Centre CC
(“Southline”), the appellant, from property in Rehoboth
where Southline operated a petrol station on land leased from BP.
Southline disputes that BP was entitled to an order of eviction and
has now approached this Court on appeal seeking the setting aside of
the eviction order.
Factual
Background
On
31 August 2005, Southline entered into a lease with BP that was to
run for a fixed period of three years from 1 September 2005 till 31
August 2008. At the same time, Southline entered into a franchise
agreement and a supply agreement with BP, which were to be valid
only for as long as the lease agreement endured. At its core, the
dispute between the parties concerns whether the appellant lawfully
exercised an option to renew the lease agreement for the period 1
September 2008 to 31 August 2009. The appellant asserts it did, but
the respondent denies this and asserts that the eviction order
granted by the High Court should stand.
The
relationship between the parties during the subsistence of the lease
appears not to have been amicable. According to Southline, it
repeatedly complained to BP about the quality of support it was
getting from BP in relation to the operation of the service station.
Finally on 18 August 2008, Southline referred a complaint to the
Minister of Mines and Energy (the Minister) in terms of section
4A(2) of the Petroleum Products and Energy Act, 13 of 1990 as
amended (“the Act”). The core of Southline’s
complaint, crisply stated, was that BP was not providing it with
adequate franchising support and was not honouring its obligations
to provide fuel to the petrol station in terms of the supply
agreement, The complaint outlines what Southline saw to be the
unsatisfactory response of BP, as the franchising company, to its
concerns. The complaint also mentions the fact that BP was refusing
to permit Southline to exercise what the complaint refers to as a
“right of first refusal” in relation to a renewal of the
lease agreement.
Shortly
after Southline referred the complaint to the Minister, on 28 August
2008, its lawyers wrote a letter to BP in which they stated “you
are hereby informed that our client exercises its option as
envisaged in clause 2 of the Agreement of Lease”. Southline
then refused to vacate the premises on 31 August 2008. When
Southline refused to vacate the leased premises, BP launched an
eviction application in the High Court on 19 September 2008 and set
the matter down for hearing on 26 September 2008 on an urgent basis.
Southline filed answering affidavits opposing the eviction
application as well as a conditional counter-application on BP on 25
September 2008. At the hearing on 26 September 2008, the High Court
struck the application from the roll with costs for want of urgency.
BP then re-enrolled the application again for hearing on 2 February
2009 by way of notice of set down. Manyarara J granted an eviction
order on 13 March 2009 and Southline filed its notice of appeal on
20 March 2009.
Appellants’ submissions
In
its written argument, the appellant raised the following two
arguments in limine:
Paragraph
E 9(b) of the High Court Practice Directions is in conflict with
article 12(1)(a) of the Constitution which guarantees, in the
context of the right to a fair trial, “adequate time and
facilities for the preparation” of a defence. According to
the appellant’s written submissions, the paragraph is
constitutionally improper because it does not expressly provide a
respondent who has had to prepare answering papers in great haste to
counter an urgent application with an opportunity to supplement its
answering papers once the application has been struck from the
urgent roll. Counsel for the appellant abandoned this argument at
the hearing of this matter and consequently nothing further need be
said about it.
The
Minister should have been joined as a party because, as the sale of
petroleum products is regulated by legislation falling within the
remit of the Minister and as the facts of the present case are
concerned with an agreement concerned with the petroleum retail
industry, the Minister has a direct and substantial interest in it.
Moreover, the appellant had directed a complaint concerning the
franchise agreement to the Minister requesting the appointment of an
arbitration tribunal, a matter that further indicated that the
Minister had a direct interest in the outcome of this case.
In
addition, the appellant raises the following arguments on the
merits:
Clause
2 of the Lease Schedule provided the appellant with an option to
renew the lease for one year from 1 September 2008 to 31 August
2009, which option the appellant exercised on 28 August 2008.
Alternatively,
if the Lease Schedule, properly interpreted, does not afford an
option to the appellant, but an option to the respondent only, the
respondent’s decision not to exercise the option was unlawful
and in breach of article 16 of the Constitution in that it
constituted an expropriation without value and in conflict with
section 4A(1)(b) of the Act.
Alternatively,
the appellant asserts that it has a lien over the property in
respect of improvements it has made to the shop situated on the
premises.
Respondent’s arguments
The
respondent argued that
There
was no need to join the Minister because even if the Minister did
have a direct interest in the proceedings, which the respondent
disputed, the Minister would suffer no prejudice by not being
joined.
The
lease agreement terminated by effluxion of time on 31 August 2008
and the respondent was then entitled to require the appellant to
vacate the property.
The
lease agreement, properly construed, did not afford the appellant an
option to renew the period of the lease agreement.
Clause 2 of the Lease Schedule was
not in violation of article 16 of the Constitution (the property
clause), nor is it in breach of article 18 of the Constitution (the
administrative justice clause).
The
lease agreement was not in conflict with section 4A of the Act.
The
appellant’s argument that it has a lien in respect of the
leased property as a result of the improvements it has made to the
shop must be rejected as there is no evidence to suggest that any
improvements have been made to the immovable property which are not
removable and therefore it has not been shown that the respondent
has been enriched at all.
Issues
The
issues to be decided in this Court are the following;
Whether
the respondent was obliged to join the Minister as a party to these
proceedings;
Whether
the lease agreement entitled the appellant to exercise an option to
renew the lease agreement and if it did, whether the appellant
exercised its option timeously;
If
the lease agreement does not entitle the appellant to exercise an
option, whether clause 2 of the Lease Schedule is contrary to the
provisions of section 4A(1)(e) of the Act because it does not
provide for reasonable security of tenure, and if it is, what the
reasonable period protecting security of tenure would be; and
whether
the failure by the respondent to extend the lease agreement is
contrary to the provisions of article 16 or article 18 of the
Constitution or section 4A(1)(b)(i),(ii) and (iii) of the Act.
Relevant
legal provisions
For
ease of reference, the relevant legal provisions shall be set out
here. Article 16 of the Constitution provides that:
“(1)
All persons shall have the right in any part of Namibia to acquire,
own and dispose of all forms of immovable and movable property
individually or in association with others and to bequeath their
property to their heirs or legatees, provided that Parliament may by
legislation prohibit or regulate as it deems expedient the right to
acquire property by persons who are not Namibian citizens.
(2)
The State or a competent body or organ authorized by law may
expropriate property in the public interest subject to the payment of
just compensation, in accordance with requirements and procedures to
be determined by Act of Parliament.”
Article
18 of the Constitution provides that:
“Administrative
bodies and administrative officials shall act fairly and reasonably
and comply with the requirements imposed upon such bodies and
officials by common law and any relevant legislation, and persons
aggrieved by the exercise of such acts and decisions shall have the
right to seek redress before a competent Court of Tribunal.”
Section
4A(1) of the Act provides that:
“Any
dealer agreement concluded between a wholesaler and an operator, any
supplementary provisions to such an agreement, shall be based on and
comply with the following:
…;
in
so far as the dealer agreement or any provision supplementary
thereto provides for the exercise of any discretionary powers which
adversely affect rights or interests, such power shall, subject to
the other provisions of this section, be exercised in accordance
with fair and reasonable practices and procedures, which shall
include -
the
giving of adequate notice of the exercise of the discretion and the
nature and purpose thereof, as well as the furnishing of reasons for
a decision (if requested thereto);
compliance
with the principle providing the other party reasonable opportunity
to be heard;
acting
in good faith having regard to clearly established facts and
circumstances only; unless it is justifiable and reasonable under
the circumstances to depart from the requirements set out in this
paragraph;
notwithstanding
paragraph (b), in so far as the dealer agreement or any provision
supplementary thereto provides for the termination of the agreement
in the event of a breach thereof -
in
the case of a non-material breach, written notice shall be given
that such non-material breach has occurred and a reasonable period
shall be allowed to rectify such breach prior to termination of this
agreement;
in
the case of a material breach, the agreement may be terminated
without prior notice or opportunity to rectify the material breach
if it is fair and reasonable under the circumstances to do so, and
for the purposes of this paragraph -
(aa)
only a breach of the agreement which relates to a fundamental and
substantive term of the agreement shall be deemed to be a material
breach; and
(bb)
no agreement shall contain a provision deeming all provisions of the
agreement to be material;
reasonable
access to correspondence, documents and property only in so far as
they relate to the business of operating an outlet in terms of the
dealer agreement; and
promotion
of security of tenure, but subject thereto that a reasonable
probationary lease period may be provided for in the case where a
dealer agreement is concluded with a new operator.”
Furthermore,
section 4A(2) of the Act provides that:
“(a)
Without derogating from any other right a person may have in terms of
any other law or with regard to access to a court, where a party is
of the opinion that a provision in a dealer agreement does not comply
with a principle set out in subsection (1), such party may refer the
matter for arbitration as provided for in paragraph (b).
(b)
The Minister shall by notice in the Gazette determine the arbitration
procedure which shall apply with regard to a matter referred to in
paragraph (a) and the Minister may by regulation proscribe any matter
supplementary to such arbitration procedures.”
Section
4A(3) provides:
“(3)
The provisions of this section, in so far as they provide for a
limitation on the right to conduct business relating to the petroleum
industry by any person, are enacted upon the authority of article
21(2) of the Namibian Constitution.”
And
section 4A(5):
“For
the purposes of this section -
“wholesaler”
means any person who imports or distributes petrol or diesel for
purposes of the wholesale thereof by that person in Namibia or who
exports petrol or diesel;
“operator”
means any person who conducts business for the sale of petrol and
diesel at an outlet.”
Joinder
The first issue that arises for
decision is whether BP should have joined the Minister as a party to
the proceedings. The appellant argues that the retail petroleum
industry in Namibia is highly regulated. It asserts that the
Minister had a direct and substantial interest in these proceedings
because, firstly, the relationship between the appellant and the
respondent falls within the purview of section 4A of the Act. In
particular, the appellant points to section 4A(2)(b) which provides
that the Minister “shall by notice in the Gazette determine
the arbitration procedure which shall apply” to a dispute that
arises as to whether an agreement complies with the provisions of
section 4A(1). In this regard, the appellant relies on the fact that
it referred a dispute concerning its relationship with BP to the
Minister and requested that an arbitration procedure be instituted.
That complaint, together with these provisions, the appellant
argues, mean that the Minister has a direct and substantial interest
in the outcome of the respondent’s application. Secondly, the
appellant points to regulations 29 and 30 of the regulations
made in the terms of the Act,
which provide that if any information on a petroleum licence is to
be changed, the licence holder shall apply to the Minister for an
amendment of the licence.
The
respondent disputes that the Minister has a direct and substantial
interest in these proceedings. It states that the issues raised in
the complaint do not correspond to the relief sought by the
appellant in this appeal (the setting aside of an eviction order)
and that the issues raised in the complaint are not directly
pertinent to the appeal. It notes that the complaint does not raise
the proper interpretation of clause 2 of the Lease Schedule, which
relates to the question of whether the appellant had an option to
renew the lease. In the alternative, the respondent asserts that
even if the Minister does have a direct interest in the proceedings,
that interest will not be prejudicially affected by the outcome of
these proceedings.
On
several occasions, the High Court of Namibia has cited with approval
the dictum of Corbett J in United
Watch and Diamond Co (Pty) Ltd and Others v Disa Hotels Ltd and
Another 1972 (4) SA 409
(C) in which the court had to consider whether subtenants of a
lessee had necessarily to be joined in a matter relating to the
termination of the lease.
The court held that the subtenants did not need to be joined,
reasoning that in order for joinder to be necessary
“what
is required is a legal interest in the subject-matter of the action
which could be prejudicially affected by the judgment of the Court.”
(at 415 H)
This crisp encapsulation of the test
for a necessary joinder recognizes that for joinder to be required
the party concerned must have a legal, not merely a financial
interest, which will be prejudicially affected by the proceedings.
The bar is thus set quite high as the facts of United Watch
illustrate. Is that bar met in this case?
It
will be helpful at the outset to consider briefly the two statutory
provisions upon which the appellant relies. The first is section
4A(2) of the Act. Subparagraph (a) of that provision states that
“without derogating from any other right a person may have …
or with regard to access to a court”, a person who considers
that a dealer agreement does not comply with the principles set out
in section 4A(1) of the Act may refer the matter to arbitration “as
provided for in paragraph (b)”. Subparagraph (b) then
provides that the Minister shall by notice in the Gazette determine
the arbitration procedure that shall apply to a matter referred to
in subparagraph (a).
The
precise import of subparagraph (b) is not immediately clear. Does
the subparagraph give the Minister a general power to provide a
general arbitration procedure for the determination of issues under
subparagraph (a)? That may well be its purport, although the
appellant appears to consider that subparagraph (b) empowers the
Minister to provide specific arbitration procedures upon request
each time a dispute arises under subparagraph (a).
Whichever
is the correct interpretation of subparagraph (b), what is clear is
that the role of the Minister is merely to determine the arbitration
procedure and to prescribe any matter supplementary to such
procedures. Any determination of the dispute is for the arbitrator,
not the Minister. Moreover, it is clear from the introductory clause
to subparagraph (a) that the right to proceed to arbitration does
not derogate from any other right a person may have in terms of
other laws or “with regard to access to court”. The
right to arbitration under section 4A(2) is thus supplementary to
any other rights the parties may have.
The
second set of statutory provisions relied upon by the appellant are
regulations 29 and 30 of the Petroleum Products Regulations made
under the Act.
Those regulations provide for the procedure to be followed to
obtain an amendment of a retail (or wholesale) licence by the
Minister. Regulation 30(3) specifically provides that a wholesaler
may apply to the Minister for the change of name of the operator of
a retail licence outlet, where a licence has been granted in respect
of a retail outlet that is owned by the wholesaler,
and the agreement between the operator and the wholesaler has lapsed
through effluxion of time. In these circumstances, the Minister is
required in terms of regulation 30(4) to give the retail licence
operator an opportunity to be heard. The regulations do not provide
that the Minister may vary the contractual relationship between the
operator and the wholesaler or grant the Minister any power to
intervene in eviction proceedings that may follow upon the alleged
termination of a contract of lease. The regulations are concerned
only with the amendment of the terms of a licence.
In
the light of these statutory provisions, can it be said that the
Minister has a legal interest in the subject matter of this case
that could be prejudicially affected by the determination of the
case? The subject matter of this case is the question whether the
respondent is entitled to evict the appellant from its premises. The
answer to that question will depend on the terms of the lease
agreement signed by the two parties. The crucial question is
whether the lease agreement contains an option in favour of the
appellant to renew the agreement for a period of twelve months. If
it does, and the appellant exercised that option correctly, the
respondent is not entitled to an eviction order in these proceedings
because at the time the proceedings were launched, appellant was
entitled to be in occupation of the leased premises.
Has
the Minister a direct legal interest in the proper interpretation of
the lease agreement? The Minister is not a party to the lease
agreement, nor does he have any rights or obligations flowing from
it. The fact that the appellant has referred a complaint to the
Minister in terms of section 4A(2)(b) of the Act does not alter
this. The referral of the complaint may require the Minister,
depending on the correct interpretation of section 4A(2)(b), to
determine a process for the arbitration of that complaint but the
existence of a statutory procedural obligation of this sort, even if
it is terminated by the outcome of these proceedings, something
which is not certain, does not result in the Minister having a
direct legal interest in the outcome of these proceedings.
Nor
do the powers of the Minister under regulations 29 and 30 give rise
to the Minister having a direct legal interest in the outcome of
these proceedings. The upholding or setting aside of the eviction
order made by the High Court may affect whether an application under
regulations 29 and 30 is made by the respondent, but the Minister
has no direct legal interest in whether an application of that sort
is made so these regulations also do not establish that the Minister
has a direct legal interest in these proceedings.
Finally,
I turn to consider two further South African authorities cited by
the appellant in support of its argument that the Minister should
have been joined in these proceedings. First, the appellant relied
upon Madadzhe v Chairman, Venda National Liquor Board 1988
(4) SA 807 (V) at 809. That case concerned an application to review
the decision of the Venda National Liquor Board to refuse the grant
of a beer hall licence to the applicant. In terms of the Venda
Liquor Act, 8 of 1973, the authority to grant a liquor licence
vested in the Minister of Justice. The Liquor Licensing Board,
after considering the application, had written to the Minister of
Justice informing him that the Liquor Board did not recommend the
grant of the licence to the applicant because another bottle store
was about to be erected in the area and it was this decision that
the applicant sought to review. The Liquor Board argued that the
Minister of Justice should have been joined. The High Court upheld
this argument reasoning that the Minister was an essential party
that had to be joined because he may wish to express views as to why
the decision of the Board should not be set aside, even if those
views related only to policy.
It
is not necessary for the purposes of this case to decide whether
Madadzhe is persuasive authority. It is quite clear that the
facts of this appeal are distinguishable. Madadzhe concerned
the review of a decision to recommend the grant of a liquor licence,
where the final grant of the liquor licence was a matter for the
Minister. This case concerns the grant of an eviction order based
on an interpretation of the contract between the parties. The
Minister has no right, whether under section 4A(2) of the Act or
under regulations 29 and 30, to determine whether the respondent has
a right to evict the appellant or not. That is a matter that turns
upon the proper interpretation of the contract and the facts of the
case. Nor can it be said that the outcome of the eviction
proceedings would be prejudicial to the Minister’s interest in
the proper regulation of the fuel industry.
Secondly,
the appellant relied upon Nguza and Others v Minister of Defence
1996 (3) SA 483 (TkS), where the applicants sought an order that
they were entitled as of right to retire from the Defence Force. The
consequence of an order in their favour entitling them to retire
from the Defence Force would have been that they would have been
entitled to greater pension benefits from the Department of Social
Welfare and Pensions than if they were to have resigned from the
Defence Force. The High Court ruled that in the circumstances the
Minister of Social Welfare and Pensions had “a real and direct
interest” (at 486D) in the application because if the
application were to be successful, he would legally be obliged to
pay increased pension benefits to the successful applicants (and all
those similarly situated).
Again
it is not necessary to determine whether the case is persuasive as
Nguza is clearly distinguishable from the facts in the
present appeal. Here, the outcome of the proceedings will not
automatically impose direct legal and financial obligations on the
Minister of Mines and Energy in respect of either the respondent or
the appellant. It is true that were the eviction order to be
upheld, the referral to arbitration of the applicant’s
complaint against the respondent might be affected in some way, but
the Minister’s role in relation to the arbitration is merely
to prescribe a procedure to be followed. Section 4A does not give
the Minister any direct interest in the substance of the complaint.
Similarly, it may be that the consequences of this case might result
in an application for the variation of a licence in terms of
regulation 29 and 30. Again, however, those provisions specifically
entitle a wholesaler to apply for the variation of the terms of a
retail licence when an agreement to operate the licence has
terminated by effluxion of time. Whether or not the Court concludes
that the contract has terminated by effluxion of time, no legal
interest of the Minister under regulation 29 and 30 will be
affected. The Court will have determined one of the jurisdictional
facts relevant to the exercise of the Minister’s power to
amend the licence, but the Minister has no legal interest in the
determination of that jurisdictional fact. Both cases cited by the
appellant are therefore distinguishable from the present case.
In
the light of the reasoning set out above, the appellant’s
argument that the Minister should have been joined in these
proceedings fails. I turn now to consider the merits of the case.
Did
clause 2 of the Lease Schedule create an option for the appellant to
extend the lease for a year?
The
lease agreement contains five parts: the Memorandum of General
Conditions of Lease, the Equipment Loan Agreement, the Service
Station Equipment Schedule, the Maintenance Schedule and the Lease
Schedule. The Lease Schedule contains, amongst other things, some of
the key terms of the lease including the duration of the lease and
the rental while the Memorandum of General Conditions contains,
amongst other things, the description of the leased property.
Clause 2 of the Lease Schedule under the heading “Duration of
Lease” provides:
“The
lease shall be for a period of 3 (three) years commencing on 01st
September 2005 terminating on 31st August 2008 with the
option of
being
renewed for a further 1 (one) year.”
In the Memorandum of General
Conditions of Lease, the “lease period” is defined as
“the period of duration of the lease as set out in the lease
schedule”.
The
appellant argues that clause 2 of the Lease Schedule entitled it, as
the lessee, to renew the lease contract for a further year, which it
did by its attorney’s letter of 28 August 2008. The
respondent disputes that the appellant had the right to exercise an
option to renew the lease and points to clause 4.2 of the Memorandum
of General Conditions of Lease which stipulates:
“The
lessor shall give the Lessee written notice not later than 1 (one)
calendar month prior to the termination of the Lease Period if the
Lessor is prepared to consider granting the Lessee a further lease,
or such other agreement relating to the supply and sale of petroleum
products from the Leased Premises, upon the Lessor’s then
prevailing terms and conditions for such a lease or agreement of
supply.”
The
High Court held that clause 2 of the Lease Schedule should be read
with clause 4.2 so that clause 2, properly interpreted, confers an
option on BP, the lessor, to renew the lease agreement. The High
Court concluded therefore that Southline, the lessee, was not
entitled to exercise an option to renew the lease agreement for a
year.
An
option to renew or extend the period of a lease, in our law, is a
form of pactum de contrahendo,
an agreement to make a contract in the future.
An option has two components: an offer proposing the conclusion of
a specific contract, and an agreement not to revoke the offer.
According to Kerr:
“Options
are contracts to keep offers open for a period. Those found in leases
normally give the lessee power to renew the lease or to purchase.”
An
option in a lease agreement relating to the renewal of the lease or
the extension of the period of the lease is thus normally, though
not invariably, an irrevocable option in favour of the lessee, not
the lessor.
The exercise of the option is the acceptance of the offer and it
must ordinarily be exercised before the original lease has ended.
The effect of the exercise of an option is ordinarily that the
contract is renewed on the same terms and conditions as the original
contract, unless the option stipulates otherwise.
Before
turning to considering the proper interpretation of clause 2 of the
Lease Schedule, it will be useful to consider clause 4.2 of the
Memorandum of General Conditions of Lease. The clause provides that
the lessor shall give the lessee written notice at least one month
prior to the termination of the lease period if the lessor is
prepared to consider the granting of a further lease upon the
lessor’s then prevailing terms and conditions for such leases.
As mentioned above, “lease period” is defined as the
duration of the lease as set out in the Lease Schedule. It thus
refers to the stipulation in clause 2 of the Lease Schedule that
provides for three years, with an option to renew for a further
year.
From
the above it is clear that Clause 4.2 does not contain an
irrevocable offer to enter into a further lease by the lessor. Nor
does it contain an irrevocable offer by the lessee to enter into a
further lease. It can, in the circumstances, not be construed to be
an option as an option is an irrevocable offer to contract.
Let
us turn now to look at clause 2 of the Lease Schedule. It stipulates
that the lease shall be for a period of three years “with the
option of being renewed” for a further one year. The clause
contemplates an option, which as set out above, is an agreement in
which one party irrevocably offers to the other party the right to
renew the agreement.
It
is not clear on what basis the High Court concluded (and the
respondent in this Court argues) that clause 4.2 of the Memorandum
of General Conditions of Lease should be read together with clause 2
of the Lease Schedule. Clause 2 appears to confer an option, an
agreement in which an irrevocable offer is made by one party to the
other, whereas clause 4.2 provides for the possibility that the
lessor may in the future make an offer to the lessee on terms that
are to be determined at some future date. Clause 4.2 contains
neither an irrevocable offer by the lessor, nor an irrevocable
undertaking by the lessee to accept any future offer by the lessor
if the lessor decides to make it. It is just not accurate to refer
to clause 4.2 as conferring “an option” upon the lessor,
as the respondent argues in this Court.
There
is a further problem of textual consistency with reading clause 2 of
the Lease Schedule as referring to the provisions of clause 4.2.
Clause 4.2 does not speak of any limitation on the period in respect
of which the lessor may make an offer to lease the property in
future. This is not surprising because clause 4.2 does not bind
either the lessor or lessee in any way, but merely records that
there is a possibility of a future lease, the terms of which
(including its duration) are not determined in clause 4.2. On the
other hand, clause 2 of the Lease Schedule expressly contemplates
the renewal of the lease under an option for a period of one year
only.
In
the circumstances, the High Court was incorrect when it found that
clause 2 of the Lease Schedule should be read subject to clause 4.2
of the Memorandum of General Conditions of Lease. The two clauses
cannot be read together. Clause 4.2 does not contain an option. It
merely contains a provision stating that the lessor may decide once
the lease period is coming to an end to offer the lessee a further
contract of lease on the same or different terms. It does not
purport to require the lessor to do so, nor to compel the lessee to
accept such offer, if ever made. Clause 4.2 is clearly contemplating
a different or new lease in the future, and not the renewal of the
existing lease. Both the reasoning of the High Court, and the
submission of the respondent, that clause 4.2 is a provision
regulating the “option” referred to in clause 2 of the
Leas Schedule cannot therefore be accepted.
The
question thus remains. What is the proper meaning of clause 2?
Clause 2 stipulates that the period of the lease is three years with
the option of being renewed for one further year. Clause 2 thus
appears to contain an irrevocable offer to extend the period of the
lease for one further year but it does not explicitly state who may
exercise this option, a matter to which I turn in a moment. Before
considering that question however, it should be noted that for an
option to be valid, it must specify with reasonable certainty the
terms of the renewed lease agreement. Leaving aside the identity of
the parties, there is certainty with regard to the leased property
and with regard to the rental. The clause regulating the rental for
the property (clause 3 of the Lease Schedule) provides a baseline
rental for the first year of the lease (September 2005 –
August 2006) and then provides for annual cost of living increases.
The rental for an additional year’s lease would therefore be
covered by the cost of living increases contemplated in clause 3 of
the Lease Schedule.
Respondent
argued that the absence of an express term as to when the option
should be exercised provided support for its argument that clause 2
does not in fact confer an option to renew the lease. As a matter of
law an option to renew a lease must be exercised before the lease
expires.
Although it may be desirable to provide for notification earlier
than the expiry of the lease, the absence of any express period, or
manner for notification of the exercise of the option, does not
render the option invalid. This argument of the respondent can thus
not be accepted.
In
summary, other than the identity of the party who may exercise the
option, all the other essential terms of a renewed contract (leased
property, rental price and other terms and conditions) are certain.
As
to the identity of the party who enjoys the option, there are only
two possible candidates -- the lessee and the lessor. Neither party
argued that, properly construed, clause 2 created an option per se
exercisable at the instance of the lessor. Instead the respondent
argued that clause 4.2 provided the lessor with a right to propose a
further lease in future, at its discretion, and suggested that
clause 2 should be read as an adjunct to that clause, an argument
rejected above. But the respondent did not argue, perhaps
understandably given the provisions of clause 4.2, that clause 2
created an option, exercisable at the instance of the lessor,
separate and in addition to what clause 4.2 conferred upon the
lessor. Nor did the respondent in its dealings with the appellant
ever suggest or act on the basis that it enjoyed a separate option
to renew the lease for a year under clause 2. Moreover, such an
interpretation of clause 2 would be an unusual one in the light of
ordinary commercial practice. In all these circumstances,
interpreting clause 2 as an option in favour of the lessor cannot be
said to be a reasonable interpretation of the clause.
Given
that it is not reasonably possible as a matter of construction to
interpret clause 2 as creating an option in favour of the lessor,
the question that arises is whether properly interpreted,
it creates an option in favour of the lessee or whether it must be
concluded that it is too vague to bear any meaning.
As a general matter of interpretation, a court will try to avoid
concluding that words in a contract are meaningless.
Generally, words in commercial contracts are intended to have
business efficacy and should be interpreted consistently with such a
purpose. Of course, any interpretation must be consistent with other
provisions of the contract, and with the statutory provisions
relevant to the contractual relationship. Moreover, in determining
the meaning of the provision a court may consider both the conduct
of the parties and the ordinary commercial practices of the
environment in which they contract.
There
is no other provision in the lease agreement that would conflict
with interpreting clause 2 of the Lease Schedule as affording an
option to the lessee. Consequently, that interpretation would not be
repugnant with any other provision of the lease agreement, nor would
it lead to any absurdity.
The
respondent points to the conduct of both parties to suggest that
neither party considered the lessee had a right to exercise an
option to renew until the lessee asserted the right in writing
shortly before the end of August 2008. It is clear on the record
that both parties were aware of the provisions of clause 4.2, and
that the respondent wrote to the appellant stating that it did not
intend to extend the agreements. Yet it is also clear that neither
party construed clause 4.2 as establishing an option of renewal at
the instance of the lessor. Once it became clear to the lessee that
the lessor was not going to offer a new lease, and after taking
legal advice, the lessee sought to fall back on the option in clause
2. It may well be (and the record suggests so) that the lessee would
have preferred another long-term contract, of lease as contemplated
in clause 4.2, rather than renewal for only a year under clause 2.
Only when it became clear that the lessor would not offer a new
contract did the lessee purport to rely on clause 2. Even if the
respondent is correct that the conduct of the parties does not
suggest that either considered the lessee to have the right to
exercise an option under clause 2 prior to 28 August 2008, when the
lessee purported to do so, that of itself cannot be determinative of
the meaning of clause 2 in the Lease Schedule.
Particularly as Southline did exercise the option on 28 August
2008.
So at the very least at that stage, Southline considered that clause
2 of the Lease Schedule conferred an option upon it.
Another
consideration is that ordinarily the commercial practice is, as Kerr
states in the quote above (at para 34), that an option to renew in a
lease is an option in favour of the lessee. Though not an invariably
so as a matter of law, general commercial practice suggests that
options to renew are afforded to lessees by lessors, and reported
cases in the law reports bear this out. This is not surprising,
particularly where a lessor has property that is commercially
attractive, as does the respondent in this case.
There
is one further important relevant to the interpretation of clause 2
of the Lease Schedule which is to be found in section 4A(1) of the
Act . That section (set out in full above at para 11) provides that
any dealer agreement between a wholesaler and an operator shall be
“based on and comply with” a range of factors, one of
which is “promotion of security of tenure”.
Given the definition of “wholesaler” and “operator”
in section 4A(5),
it seems clear that the lease agreement,
which includes provisions regulating the supply of petrol and diesel
as well as the lease of land, is a dealer agreement within the
meaning of section 4A. The statutory principle in section 4A(1)(e)
clearly seeks to promote the security of tenure of retail operators
within the industry vis a vis wholesalers. As a statutory principle
that governs dealer agreements, it is relevant to the interpretation
of a dealer agreement in case of ambiguity or uncertainty. One must
presume that both BP and Southline were aware of the principles set
out in section 4(A)(1) and that they intended to contract in
accordance with those principles. Given that the Act clearly
intends to “promote” security of tenure of operators,
such as Southline, reading clause 2 as affording Southline an option
would be consistent with this statutory purpose.
In
all these circumstances, given the principled desirability of
attaching meaning to clause 2 that is consistent with the other
provisions of the contract, with commercial practice and with the
statutory purpose of encouraging security of tenure of retail
operators in the industry, appellant’s argument that clause 2
created an option, exercisable at its instance, must be upheld.
The
appellant’s argument that it exercised an option to extend the
lease for a period of one year therefore succeeds. The consequence
is that, at the time the respondent sought to evict the appellant,
the appellant was in lawful possession of the property and the
respondent was not entitled to an eviction order. In the result, as
the appeal succeeds, it is not necessary to consider the other
arguments raised by the appellant. The eviction order made by the
High Court must be set aside.
Costs
The
appellant has succeeded and it is appropriate, therefore, that costs
should follow the result and the respondent ordered to pay the costs
of the appellant in this Court and in the High Court, such costs to
include the costs occasioned by the employment of two instructed and
one instructing legal representative.
The
following order is made:
The
appeal succeeds.
The
order of the High Court is set aside and replaced with the following
order:
“The application is dismissed
with costs, such costs to include the costs of two instructed and one
instructing counsel.”
The
respondent is ordered to pay the costs of the appellant in this
Court such costs to include the costs of two instructed and one
instructing counsel.
_________________
O’REGAN
AJA
I
concur.
__________________
STRYDOM
AJA
MTAMBANENGWE, AJA
I
have read the draft judgment (the judgment) of O’Regan, AJA
and agree with the first part thereof (up to paragraph [29]). I give
hereunder the reasons why I find myself unable to agree with the
reasoning in the rest of the judgment and the order arising from
that reasoning.
The
last part of the judgment deals with the central issue namely how
clause 2 of the Lease Schedule should be interpreted, and whether
clause 4.2 of the Memorandum of the General Conditions of Lease
should be read together with clause 2 of the Lease Schedule.
Clause
2 provides:
“The Lease shall be for a period
of 3 (three) years commencing on 01st September 2005
terminating on 31st August 2008 with the option of
being renewed for a further 1 (one) year.” (My
emphasis)
Whereas clause 4.2 stipulates.
“The Lessor shall give the
Lessee written notice not later than 1 (one) calendar month
prior to the termination of the Lease Period if the Lessor is
prepared to consider granting the Lessee a further lease, or
such other agreement relating to the supply and sale of petroleum
products from the Leased Premises, upon the Lessor’s then
prevailing terms and conditions for such a lease or agreement
of supply.” (My emphasis)
The High Court (Manyarara, A.J.)
concluded and respondent in this Court argues that clause 4.2 should
be read together with clause 2, so that clause 2, properly
interpreted, confers an option on BP, the lessor, to renew the lease
agreement. As a result the High Court concluded that Southline was
not entitled to exercise an option to renew the lease. O’Regan,
AJA questions the basis on which the High Court could come to such a
conclusion. I respectfully also disagree with the conclusion drawn
by the High Court. On the other hand I disagree with the conclusion
in the judgment that clause 2 and clause 4.2 “cannot be read
together”. (paragraph [40])
The
judgment concludes (paragraph [40]) and I fully agree, that “clause
4.2 does not contain an option. It merely contains a provision
stating that the lessor may decide once the lease period is coming
to an end to offer the lessee a further contract of lease on the
same ... terms”. The language used in clause 4.2 leaves no
doubt that that was what the parties intended. Surprisingly the
judgment then goes on to seek an interpretation of clause 2 that
seems to completely ignore this provision.
O’Regan,
AJA rightly says:
(a) in paragraph [41] of the judgment,
“for an option to be valid, it must specify with reasonable
certainty the terms of the renewed lease agreement”.
(b) In paragraph [45], “As a
general matter of interpretation, a court will try to avoid
concluding that words in a contract are meaningless. Generally words
in commercial contracts are intended to have business efficacy and
should be interpreted consistently with such a purpose...any
interpretation must be consistent with other provisions of the
contract...” It seems to me that logic requires that all these
principles be applied to both clause 2 and clause 4.2 and that an
interpretation of one (clause 2) should be sought that is consistent
with the other (clause 4.2). In other words before other aids to
interpreting clause 2 are resorted to a court should first seek an
interpretation that does not render clause 4.2 meaningless. This
would therefore necessitate that the two clauses should be read
together.
I
am in agreement with the judgment that clause 2, even if read with
clause 4.2, does not confer an option exercisable by BP separate and
in addition to the right conferred on it by clause 4.2. Given that
the words in clause 4.2 cannot or should not be regarded as
meaningless what then is the meaning of those words in clauses 2 and
4.2 which I have underlined in paragraph [3] above. And can they be
made to harmonise with the vague phrase in clause 2 “with the
option of being renewed”?
To
begin with, I see no contradiction in regarding the words “a
further lease” as meaning an option to lease if you describe
an option as an irrevocable offer in favour of the lessee, in other
words as good as a contract to be perfected at the instance of the
lessee. In this regard, I would uphold respondent’s
submission (reflected in the judgment (paragraph [40]) “that
clause 4.2 is a provision regulating the ‘option’
referred to in clause 2 of the Lease Schedule”, and reject the
strained reasoning that seeks to give clause 2 a meaning to the
effect that, standing alone, it gives an option to be exercised by
the lessee. I would therefore conclude that there was nothing in
the nature of “an irrevocable option in favour of the lessee”
until the lessor exercised his right conferred by clause 4.2. The
conduct of Southline purporting to belatedly (i.e. three or four
days before the expiry of the lease) resort to clause 2 and
belatedly exercising the so-called option speaks volumes against the
interpretation the judgment seeks to put on clause 2.
The
fact that respondent mistakenly argued that clause 2 gave the lessor
an option does not prevent this Court from adopting an
interpretation of the clauses that accords with the language used in
the contract as a whole, that harmonises clause 2 and clause 4.2 and
that accords with what the lessee, according to the language of
clause 4.2 and its own conduct, was entitled to expect, which was,
in my view, that the lessor would offer it an option to renew the
lease not “on terms that are to be determined at some future
date” as the judgment says, but “upon the Lessor’s
then prevailing terms and conditions” as clause 4.2 says. It
is simply not correct to say (paragraph [39] of the judgment) that
“Clause 4.2 does not speak of any limitation on the period in
respect of which the lessor may make an offer to lease the property
in future”, it does, when it says, “at least 1 month
prior to the termination of the lease period”.
With
respect, it seems to me that the approach taken in the judgment, of
reading clause 2 apart from clause 4.2 and straining to find that an
irrevocable option was granted to the lessee, amounts to making a
contract for the parties. In this regard, I do not understand the
basis of the judgment concluding (paragraph [46]) that “there
is no other provision in the lease agreement that would conflict
with interpreting clause 2 of the Lease Schedule as affording an
option to the lessee”. That can only be said by regarding the
words of clause 4.2 as completely meaningless. The conduct of the
parties, particularly that of appellant, who it must be assumed,
were fully aware of both clauses, provides a very strong indication
that neither regarded that clause 2 conferred an option upon the
lessee (see in particular paragraph [47] of the judgment).
In
reaching the conclusions I have come to above, I have not ignored
the other considerations that the judgment took into account, but
the fact that Southline only belatedly sought to assert that it had
an option in terms of clause 2 (when “It may well be that the
lessee would have preferred another long-term contract, of
lease.....rather than renewal for only a year”), in my opinion
far outweighs all the other factors considered in the judgment to
support the principle that “…general commercial
practice suggests that options to renew are afforded to lessees by
lessors…” (paragraph [48] of the judgment), and the
presumption that both parties intended to contract in accordance
with the principles (security of tenure) set out in section 4A(1) of
the Petroleum Products and Energy Act, Act 13 of 1990, as amended.
The simple answer to the first is that provisions in clause 2 and
clause 4.2 are not the ordinary provisions one finds in contracts of
lease. In regard to the second (the assumption) and in regard to
both one must also assume that both parties were aware of these
principles and deliberately chose the language they used in both
clause 2 and clause 4.2. Moreover, there is no suggestion on the
record, nor did either party submit that either of them negotiated
from a position of inferiority to the other. These considerations
leave no room for speculation.
In
all the circumstances I conclude that both appellant’s
arguments upheld by O’Regan, AJA must be dismissed and in the
result the appeal fails.
The
following order is made:
The
appeal is dismissed with costs, such costs to include the costs of
two instructed and one instructing counsel.
________________________
MTAMBANENGWE,
AJA
Counsel
on behalf of the Appellant: Mr. R. Heathcote
Assisted
By: Mr. D. Obbes
Instructed
By: Kruger, van Vuuren & Co
Counsel
on behalf of the Respondent: Mr. P. B. Hodes SC
Assisted
By: Mr. J. Schickerling
Instructed
By: Engling, Stritter & Partners
Southline Retail Centre CC v BP Namibia (Pty) Ltd (SA 9/2009) [2011] NASC 26 (09 June 2011);