|In this case, the First Appellant (“Starways”) (in liquidation), entered into a written contract with the First Respondent (“Pearl”) in terms of which Starways sold 25 000 metric tonnes of imported sugar to Pearl (“the sugar contract”).
The terms of the sugar contract provided that the first consignment of sugar would be delivered directly from the port to Pearl. Subsequent consignments would be delivered “ex warehouse”, being Starways’ warehouse in Cape Town. The sugar contract also specified purchase prices and expresslyprovided that it was subject to South African law. Pearl is a wholesale supplier which sells sugar in packaged form and at an increased price to, amongst others, the Second Respondent (Shoprite Checkers), which is a retailer.
The purchase prices in the sugar contract were inclusive of the import duty on sugar in terms of the Customs and Excise Act 91 of 1964 (“the Act”). The import duty was payable by Starways. After the sugar contract had been entered into but before the delivery of the first consignment of sugar became due, the import duty on sugar was reduced drastically. This had the practical effect of reducing the purchase price for the first consignment of sugar by some R18 million and of the total purchase price by some R51 million in terms of section 59 of the Act discussed below. Section 59 of the Act provides that contract prices may be varied to the extent of alterations in duty payable under the Act.
As such: Section 59(1) deals with the situation where a new duty is imposed or a duty is increased entitling the supplier (Starways) to claim the shortfall from the purchaser; andSection 59(2) provides, inter alia, that whenever a duty is decreased on goods that are delivered in terms of a contract that was entered into before the decrease in duty became effective, the purchaser may, in the absence of agreement to the contrary, deduct from the purchase price a sum equal to the benefit of the decrease to the seller.
Pearl took a stance that the sugar contract did not contain an agreement to the contrary as contemplated by s 59(2) and that it was therefore entitled to pay a reduced purchase price.
Starways, on the other hand, contended that the term ex warehouse (included in the sugar contract) constituted an agreement to the contrary that entitled it to the benefit of the decrease in import duty as the sale was not perfecta due to the passing of risk and benefit being postponed until delivery to Pearl took place. Pearl regarded Starways’ insistence on this interpretation of the sugar contract as repudiation thereof. It maintained that its acceptance of the repudiation put an end to the sugar contract. Starways denied that it repudiated the sugar contract. In addition, it contended that a separate tripartite agreement had been entered into in terms of which Shoprite Checkers was obliged to it to make payment of the purchase prices specified in the sugar contract with Pearl.
Starways applied to the Western Cape Division of the High Court, Cape Town, for an order enforcing the sugar contract against Pearl and the alleged tripartite agreement against Shoprite Checkers .
The matter raised three issues, namely: the interpretation of the sugar contract, particularly whether the term ex warehouse excluded the operation of s 59(2); whether Starways repudiated the sugar contract; and whether there was contractual privity between Shoprite Checkers and Starways.
The court a quo ruled against Starways on all three issues and dismissed its application. On appeal to the Supreme Court of Appeal (the “SCA”) Starways challenged the findings of the court a quo in respect of each of these issues.
On or about 3 December 2018 the Supreme Court of Appeal (the “SCA”) held that unless they are excluded by agreement, the provisions of s 59 of the Act in the specified circumstances constitute terms of a contract of sale implied by law.
In the circumstances Starways had to prove that the ordinary meaning or a special or technical meaning of the term ex warehouse excluded the application of s 59 of the Act.
The SCA held that the ordinary meaning of the term ex warehouse is ‘out of or in front of the warehouse’ and that no special or technical meaning could be ascribed to the term. The term merely served to state where delivery of subsequent consignments would take place.
The SCA further noted that even if the ex warehouse term altered the incidence of risk to some degree, the sugar contract was made subject to South African law in terms of which the obligation to pay the import duty rested only on Starways but would under no circumstances be transferred to Pearl. The advantage and disadvantage caused by fluctuation of the duty payable, however, would be passed on to Pearl in the manner provided for in section 59 of the Act unless the parties agreed to the contrary.
The SCA therefore ruled that Pearl was entitled to a reduction of price in terms of s 59(2) and that Starways’ interpretation to the contrary was wrong.
With regard to the question of whether Starways repudiated the sugar contract, the SCA further held that a reasonable person in the position of Pearl was, in the circumstances, entitled to accept that Starways would not perform its duties in terms of the objective and correct interpretation of the sugar contract but would insist on its own interpretation thereof. Pearl was therefore entitled to cancel the sugar contract.
The SCA concluded that there was in any event no contractual privity between Starways and Shoprite. It held that neither an express nor tacit tripartite agreement had been entered into and that the alternative reliance by Starways on the doctrine of the undisclosed principal was unfounded.
The SCA dismissed the appeal with costs.
This case reiterates the fact that in the absence of express terms or some legally justifiable explanation to the contrary, any agreement governed by legislation will operate under the provisions of such legislation.
Written by Jonathan Green Checked by Musa Mathebula