|On or about 17 February 2005, Innovent Rental & Asset Management Solutions (PTY) Ltd (“the Appellant”), a company that finances the acquisition and leasing of equipment, entered into a Master Rental Agreement (“MRA”) with Transnet SOC LTD (“the Respondent”), under which it would acquire equipment in accordance with the specifications of the Respondent, and lease that equipment to the Respondent, in accordance with the terms as stipulated in the rental schedule of the MRA (“Equipment”).
The MRA was subsequently revised, when the first tranche of equipment was acquired and leased to the Respondent. Subsequently, five rental schedules were concluded, in relation to additional equipment. All of those agreements have come to an end. Some of the equipment has been returned and the present dispute stems from the condition in which the Equipment had been returned, mindful of the relevant provisions of the MRA hereof, being clause 11, which is paraphrased as follows:
- Respondent shall, on termination of the MRA, return the Equipment in good working order and condition, fair wear and tear excluded, together with applicable documents, licenses and insurance policies to the Appellant (clause 11.1).
- Equipment shall be considered as not returned, if same is not decommissioned in accordance with the original manufacturer’s specifications and the appropriate certificates have been furnished to the Respondent (clause 11.2).
- Should the Respondent fail to comply with the abovementioned, then the Respondent, at the expiration or earlier termination of the renting of the Equipment, in terms of the MRA, and at the Respondent’s cost, shall deliver replacement Equipment, that is of a similar nature to the Equipment. Alternatively, would make payment of an amount equal to Residual Value of the Equipment (clause 11.3).
|The Appellant contended in the High Court of South Africa, Gauteng Local Division, Johannesburg (“high court”), that the Equipment had not been returned in good order and condition, and that the Respondent had failed to comply with the abovementioned clause. Accordingly, the Equipment was to be regarded as not returned, as it had not been decommissioned in accordance with the original manufacturer’s specifications and was not accompanied by the appropriate certificates. The high court held that the Respondent had not returned the Equipment. The high court upheld its decision and dismissed the Respondent’s application for leave to appeal.
This case is a further appeal with special leave of the Supreme Court of Appeal of South Africa (“SCA”), from the decision that was made by the SCA to substitute the high court judgment, to absolution from instance with costs for the order of the high court. The issue herein is whether, on proper interpretation of clause 11.2 of the MRA, the Equipment had to be decommissioned in accordance with specifications prescribed by the original manufacturer. It is common cause that the original manufacture had not prescribed any special procedures for decommissioning the Equipment, and nothing had been done in this regard when the Equipment was returned. Therefore, the Respondent contended that no obligations were imposed on it by clause 11.2.
|Counsel for the Appellant, submitted that clause 11.2, contained a presumption that in all cases, there needed to be a decommissioning in accordance with the original manufacturers specification, in an attempt to overcome the difficulty that there was common cause that the original manufacturer had done nothing of the sort. He did this by going through the background which led to the conclusion of the MRA, by stating that the Respondent was solely responsible for the nature of the Equipment, so the Respondent had to ensure that the manufacturer specified the requirements thereof. The fact that the Respondent failed to get these requirements, should not be laid to the Appellant’s door.
The Appellant’s submission is based on a fundamental fallacy in the interpretation of contracts. The fallacy lay in describing clause 11.2 as a presumption and treating it as an independent enacting provision when in substance, it is a proviso to clause 11.1. To address this fallacy, the court relied on the case of Mphosi v Central Board for Co-Operative Insurance 1974 (4) SA 633 (A), which states that “…a provisio cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing to it that effect”. The Court further mentioned the case of R v Dibdin  P 57 (CA), which expresses that“…It sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso”. In light of the above, the Court dismissed this appeal with costs, including the costs of two counsels.
This case demonstrates the importance of including appropriate stipulations in standard form agreements, to secure obligations.
Written by Puseletso Radebe and Omphile Boikanyo