REPORTABLE ZLR (55)

Judgment No. 57/07

Civil Appeal No. 73/06

BEITBRIDGE-BULAWAYO/RAILWAY PRIVATE LIMITED v

COMMERCIAL UNION INSURANCE COMPANY OF ZIMBABWE LIMITED

SUPREME COURT OF ZIMBABWE

CHEDA JA, GWAUNZA JA & GARWE JA

HARARE, JUNE 25, 2007 & 11 MARCH, 2008

J C Andersen SC, for the appellant

A P De Bourbon SC, for the respondent

GARWE JA:

This is an appeal against the decision of the High Court dismissing with costs the appellant’s claim against the respondent for payment of the sum of U.S  $1 765 652.  

This matter was dealt with as a stated case before the High Court. The agreed facts were as follows. The appellant acquired the sole right to the use of the Beitbridge-Bulawayo railway line for, inter alia, the carriage of goods, including petrol, for the National Oil Company of Zimbabwe (NOCZIM). In terms of a business interruption insurance agreement, the respondent insured the appellant against any loss of gross profit resulting from any interruption of or interference with its business during the period 1 June 1999 and 31 May 2000. Between 24 February and 20 April 2000 appellant’s business was interrupted by a cyclone. The cyclone rendered the railway line from South Africa to Beitbridge impassable and as a consequence goods could not be carried on the railway line. As a result the appellant suffered certain losses. Those losses have been made good by the respondent save for loss of gross profit in the sum of US$1,765, 652.00 in respect of NOCZIM traffic which is at the centre of this appeal. It was agreed by the parties that the respondent would be liable to pay this amount unless, despite appellant’s inability to convey petrol belonging to NOCZIM, NOCZIM was obliged to make payment for the minimum volume of traffic it was obliged to procure on the railway line in terms of an agreement between the appellant and NOCZIM.

The High Court found that despite the cyclone, NOCZIM was liable to pay the minimum amount due in terms of the agreement and consequently the appellant should have looked to NOCZIM for payment of the amount in question. As a result, the High Court dismissed the plaintiff’s claim with costs. It is against this finding that the appellant has now appealed to this Court.

The issue that falls to be decided by this Court is a narrow one. It is whether NOCZIM’s obligation to pay the minimum amount was suspended following the disruption to the railway line as a result of the cyclone.

In his submissions, Mr Andersen attacked the finding of the court a quo on the broad basis that the court misdirected itself in finding that NOCZIM’s obligation to make the payment for the minimum volume of petrol had not been suspended by reason of the supervening impossibility and frustration that arose as a result of the closure of the railway line due to the cyclone. In particular, he submitted that the court a quo erred in coming to the conclusion that clause 9 of the agreement between NOCZIM and the appellant did not suspend NOCZIM’s liability to make payment for the minimum volume. He further submitted that the words “payment due under this agreement” refers to payments other than those relating to the disruption of the agreement which had either fallen due or would fall due in the future. He also submitted that the court a quo erred in coming to the conclusion that payment could still be claimed when the obligation giving rise to it had been suspended. He further argued that this is a case where the principle of reciprocity applies. Therefore where the one party has not performed for whatever reason, the other cannot demand performance. It was also his submission that the contention by the respondent that NOCZIM was obliged to make the minimum payment “come what may” is not correct and could not possibly have been contemplated. Lastly it was his submission that even if the agreement as a whole did not fall away, liability would not arise for such obligations which constituted supervening impossibility.

Mr de Bourbon, for the respondent, submitted that the real issue in this matter is the interpretation to be given to the agreement and in particular to Clause 9.3. He argued that save where the law brought the agreement to an end, the obligation to make the minimum payment continued even if other obligations in terms of the agreement were suspended or even terminated. The cyclone was temporary and did not create a supervening impossibility of performance which discharged the contract as a whole. In other words the effect of the cyclone was to suspend for a period the discharge of obligations under the contract. The contract specifically made provision for what was to happen during the period of suspension. He argued therefore that this is not a matter that can be determined on the basis of supervening impossibility of performance. Rather the matter has to be determined in terms of the contract, which contract provided that the minimum payment would have to be made irrespective of the suspension of other obligations.

The general rule in our law is that if as a result of vis major or other supervening physical or legal act performance of a contract has become impossible through no fault of the debtor, the obligations under the contract are extinguished. If authority is required for this proposition attention is drawn to Kok v Osborne & Anor 1983 (4) SA 788 at p 802; Acting Minister of Industry & Anor v Tanaka Power (Pvt) Ltd 1990 (2) ZLR at 208 at p 214; Field N O & Anor v Compuserve (Pvt) Ltd 1990 (2) ZLR 253, at p 260.

The above proposition does not, however, cover the situation in which one party is temporarily disabled from fulfilling his obligation – Field N O & Anor v Compuserve (Pvt) Ltd supra at p 260 F-G.

The position appears to be well settled in our law that whilst as a general rule supervening impossibility can extinguish obligations under a contract, there are, however, exceptions. In Kok v Osborne & Anor supra at p 803 A-D, JONES J cited with approval remarks by BOSHOFF JP in Bischofberger v Van Eyk 1981 (2) SA 607 at 610H-611H that:

“This general rule is not so absolute as to override the terms or the implications of the contract … .

It follows from this that, when the Court has to decide on the effect of impossibility of performance on a contract, the Court should first have regard to the general rule that impossibility of performance does in general excuse the performance of a contract but does not do so in all cases, and must then look to the nature of the contract, the relation of the parties, the circumstances of the case and the nature of the impossibility to see whether the general rule ought, in the particular circumstances of the case, to be applied. In this connection regard must be had not only to the nature of the contract, but also to the causes of the impossibility. If the causes were in the contemplation of the parties, they are generally speaking bound by the contract. If on the contrary, they were such as no human foresight could have foreseen, the obligations under the contract are extinguished …”.

In Bekker N.O. v Duvenhage 1977(3) SA 884, SOLOMON J stated at       p 888:

“That exceptions exist was stated by SOLOMON A.C.J. and it is clear that impossibility of performance will not always excuse non-performance of a contract. If, by investigating the issues referred to by STRATFORD J, supra, it is clear that the parties contemplated the situation which gives rise to the impossibility, then clearly, the general rule would not apply …”.

The Law of Contract in South Africa, 3 ed, by R.H. Christie makes the same observations. At p 527, the learned author remarks:

“There is nothing to prevent the parties making special provision in their contract for happenings that would otherwise discharge the contract and excuse non-performance. One could properly say that by mentioning the possibility they have taken foreseeability out of it and by making provision they have taken the unavoidability out of it, so it no longer falls within the rule, or one could place the validity of such an argument on the simpler basis that it is a lawful agreement and must be enforced. Such an agreement may also be made tacitly, where the nature of the contract and the surrounding circumstances lead to the conclusion that the parties accepted the risk of the event that has occurred …”.

I am satisfied that the remarks made in the authorities to which reference has just been made correctly reflect the law in this country. In short regard must be had to the agreement between the parties as it is from the provisions of the agreement that a court can determine whether or not supervening impossibility or frustration has the effect of extinguishing obligations under that agreement. I would therefore agree with Mr de Bourbon that the real issue before this Court is the interpretation to be given to the relevant portions of the agreement.

The relevant provisions which are at the centre of the dispute in this matter are to be found in Article IX of the agreement between the parties. That article reads as follows:

“SUSPENSION OF OBLIGATIONS FOR CAUSES BEYOND CONTROL

9. 1. Should either party be prevented wholly or in part from fulfilling its obligations under this agreement for causes beyond its control, its obligations, other than to make any payment due under this agreement, shall be suspended to the extent and for so long as such obligations are affected by causes and the party claiming under this article shall immediately notify the other party to that effect and shall be entitled to such extension of time to fulfil its obligations as may be reasonably entitled by the effect of such causes.

9. 2. Causes beyond the control of a party, within the meaning of this Agreement, are those circumstances, the effects of which that party cannot reasonably avoid. Such circumstances include, but are not limited to the following and their direct after effects, namely civil unrest, strikes and lockouts, force majeure, act of God, breakdown of or accident to equipment or machines (provided such breakdown of, or accident to, equipment or machines is not due to wilfulness or negligence as per article 8), disruption of public services or of utilities and an action or inaction of public authority.

9. 3. It is specifically recorded that the provisions of this clause shall not apply to any payment due under This Agreement.” (my emphasis)

It is clear from the above provision that the parties were aware that intervening impossibility could prevent a party either wholly or in part from fulfilling its obligations under the contract. In the knowledge of the possibility of such an event, the parties agreed that all obligations would be suspended for the duration of such an event except the obligation to make payment due under the agreement. In other words, irrespective of whatever happened the obligation to make payment due under the agreement would not be suspended by such an event. It is also clear from the wording of Article IX that it was not the intention of the parties that the contract should terminate on the occurrence of the events mentioned therein. Rather the intention was that the agreement would be suspended for the duration of the events giving rise to such impossibility. It must be observed, however, that in terms of our common law the contract could be extinguished if it became impossible for the one party to discharge its obligations under the contract permanently.

The issue that arises is the meaning to be given to the phrase “any payment due under this agreement”.

The payments that NOCZIM is obliged to make are provided for in Article IV of the agreement and in particular in Articles 4.2 and 4.3. Article 4.2 provides that NOCZIM is obliged to pay in respect of each calendar year an amount which is the greater of the tariff to be paid in respect of the minimum number of tones warranted to be transported per year or the amount actually payable in respect of products actually transported on the railway line that year. Clause 4.3 makes a similar provision but in respect of a calendar quarter and further provides that any payment for any shortfall should be made within twenty-five days of the end of the quarter in question. Article 4.5 further provides that the compensation payable by NOCZIM in terms of Articles 4.2 and 4.3. shall be payable within the period referred to without deduction and/or set-off and further that no event shall excuse its non-payment.

It was Mr Andersen’s submission that the words “payment due under this agreement” refer to payments other than those relating to the disruption of the agreement which had either fallen due or would fall due in future.

On a proper reading of Clause 9.3 of the agreement, I am persuaded that the payment referred to in that clause is the payment envisaged in clause 4.2. as submitted by Mr De Bourbon. Indeed, there is no other payment that the appellant is obliged to make in terms of the agreement. For this reason I am unable to accept the submission that the payment referred to was in respect of payments other than those relating to the disruption of the agreement which had either fallen due or would fall due in the future. Article 9.3 is clear and allows of no ambiguity. The obligation to make payments due under the agreement remains in the event of supervening impossibility whilst the other obligations are merely suspended. The payment due under the agreement is the payment due under Clause 4.2 of the agreement.

As Mr de Bourbon correctly observed, there is no other payment due other than the payment of the minimum amount under Article IV as the payments and obligations are suspended by Clause 9.1 and 9.2. I do not therefore accept the submission that there were “other payments other than those relating to the disruption of the agreement which had either fallen due or would fall due in the future”.   Mr Andersen does not say which other payments these are, if these are not part of the payments envisaged in Clause 4.2.

I am satisfied that the above interpretation of Clause 9.3 is correct and that such interpretation does not result in an absurdity. The position is now well established that in interpreting words in a contract, it is the grammatical and ordinary sense of the words that is to be adhered to unless that would lead to some absurdity or some repugnance or inconsistency with the rest of the contract - The Law of Contract in South Africa, 3 ed, by R.H. Christie at p 228. I would agree that clause 9.3 was inserted to ensure that a minimum amount was payable notwithstanding any suspension of obligations in terms of the agreement due to unforeseen circumstances. I should hasten to add however that in terms of the common law the obligation to pay would be discharged if it were to be shown that the impossibility is permanent.

I now proceed to consider the further argument raised by the appellant that it is not liable to pay the amount in question as there was no reciprocity.

The principle of reciprocity recognizes the fact that in many contracts the common intention of the parties, expressed or unexpressed, is that there should be an exchange of performances, and the exception gives effect to the recognition of this fact by serving as a defence for the defendant who is sued on the contract by a plaintiff who has not yet performed or tendered to perform - The Law of Contract in South Africa supra at p 467.

In order to decide whether a defendant can raise such a defence in any given case, it is necessary to decide whether the contract is one to which the principle of reciprocity would apply. This is a question of interpretation. The presumption is that in any bilateral contract the common intention is that neither should be entitled to enforce the contract unless he has performed or is ready to perform his own obligations.

It was Mr Andersen’s submission that the principle of reciprocity applies in this case. It was NOCZIM’s duty to provide the petrol and the appellant’s duty to transport it. NOCZIM had the petrol available but the appellant was not able, due to the cyclone, to transport it. He argued that the appellant could not therefore have claimed payment when it had not carried out its obligations towards NOCZIM to transport the fuel.

It is important to remember that, as with many principles of the law of contract, principles may be excluded by contract. In other words, it is the contract itself to which regard should be had.

Aware of the appellant’s obligations to transport the fuel, the parties agreed that in the event that either party was prevented from fulfilling its obligations, the agreement would be suspended for the duration of the event causing such impossibility, except the obligation to make payment due under the agreement. I have already found that the payment envisaged was the minimum payment under Clause 4.2 of the agreement. In other words, the defence that would otherwise have been available to the appellant was by agreement expressly excluded. That being the case therefore, the defence is not available to the appellant. The performance by NOCZIM was not conditional upon performance by the appellant. The suggestion by Mr de Bourbon that, because of infrastructural arrangements that the appellant was required to make, the parties must have intended that the minimum payment be made irrespective of the quantity of fuel that was transported is not far-fetched. Indeed, Clause 4.6 of the agreement emphasizes that no event shall excuse the non-payment of the amounts referred to in Clauses 4.2 and 4.3.

In the result therefore I am satisfied that the decision of the court a quo was correct.

The appeal is accordingly dismissed with costs.

CHEDA JA: I agree

GWAUNZA JA: I agree

Coghlan, Welsh & Guest, appellant’s legal practitioners

Honey & Blackenberg, respondent’s legal practitioners