THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 470/2020

In the matter between:

CAPITEC BANK HOLDINGS LIMITED         FIRST APPELLANT

CAPITEC BANK LIMITED                                   SECOND APPELLANT

and

CORAL LAGOON INVESTMENTS
194 (PTY) LTD

FIRST RESPONDENT

ASH BROOK INVESTMENTS
15 (PTY) LTD

SECOND RESPONDENT

THE TRANSNET SECOND
DEFINED BENEFIT FUND
THIRD RESPONDENT

RORISANG BASADI
INVESTMENTS (PTY) LTD
FOURTH RESPONDENT

LEMOSHANANG INVESTMENTS
(PTY) LTD                                                             FIFTH RESPONDENT

Neutral citation: Capitec Bank Holdings Limited and Another v Coral
Lagoon Investments 194 (Pty) Ltd and Others
(470/2020) [2021] ZASCA 99 (09 July 2021)

Coram:
PONNAN, MAKGOKA, MBATHA JJA and GOOSEN and
UNTERHALTER AJJA

Heard:
18 May 2021

Delivered: This judgment was handed down electronically by circulation
to the parties’ representatives by email, publication on the Supreme Court
of Appeal website and release to SAFLII. The date and time for hand-down
is deemed to be 09h45 on 09 July 2021.

Summary: Contract – approach to interpretation – good faith – consent as
a requirement for the sale of shares – past conduct as a guide to
interpretation – parol evidence rule – good faith at common law –
independent source of contractual obligation – orders requiring the grant
of consent.

ORDER

On appeal from: Gauteng Division of the High Court, Johannesburg
(Vally J, sitting as court of first instance):
The appeal is upheld with costs, including the costs of two counsel.
Paragraphs 4 – 8 of the order of the high court are set aside and
replaced with the following:
‘2.1 The application under case number 30899/2019 is dismissed;
2.2
The applicants and the first and second Intervening Parties in
case number 30899/2019 shall pay the costs of the first and
second respondents, such costs to include the costs of two
counsel, where so employed.’

JUDGMENT

Unterhalter AJA (Ponnan, Makgoka, Mbatha JJA and Goosen AJA
concurring)

Introduction
[1] The
first
appellant,
Capitec
Bank
Holdings
Limited
(Capitec Holdings), the first respondent, Coral Lagoon Investments 194
(Pty) Ltd (Coral), and the second respondent, Ash Brook Investments 16
(Pty) Ltd (Ash Brook), in December 2006, concluded a subscription of
shares and shareholders agreement (the subscription agreement). Pursuant
to the subscription agreement, Coral subscribed for, and Capitec Holdings
issued, 10 million ordinary shares to Coral. Coral, in turn, was required to
allot and issue shares to Ash Brook so as to constitute Ash Brook as the
only ordinary shareholder of Coral. This was done. The object of the
subscription agreement was, as its recital explains, to permit
Capitec Holding to increase its black shareholding, and thereby fulfil its
black empowerment obligations.

[2] Regiments Capital (Pty) Ltd (Regiments Capital) held a 59.82%
interest in Ash Brook. On 8 August 2019, Regiments Capital, and various
parties related to it (the Regiments Parties), Coral and the third respondent,
the Transnet Second Defined Benefit Fund (the Fund), entered into a
settlement
agreement.
The
settlement
agreement
required
Regiments Capital and the Regiments Fund Managers to pay the Fund a
settlement amount of R500 million, together with interest, in settlement of
the Fund’s claims against the Regiments Parties. Those claims arose from
litigation instituted by the Fund against the Regiments Parties. The Fund

alleged that the Regiments Parties had defrauded the Fund and sought to
recover monies for the benefit of the Fund’s members. The settlement
amount was to be funded by the sale of 810 230 Capitec Holdings shares
(the sale shares). The proceeds of the sale were to be used to discharge the
settlement amount owing to the Fund, with the balance of the purchase
price to be paid by the Fund to an account nominated by Coral.

[3] Among the suspensive conditions in the settlement agreement,
clause 3.1.4 stipulated that ‘the Capitec Consent having been duly obtained
and executed’. The Capitec Consent was defined to mean ‘the written
agreement and consent of Capitec to the sale and purchase of the
Sale Shares . . .’. This condition was stated to be for the sole benefit of the
Regiments Parties and Coral.

[4] Coral and the Fund sought to obtain the consent of Capitec Holdings
for the disposal of the sale shares by Coral. Correspondence between the
parties ensued. The positions adopted by the parties will be considered in
what follows. Capitec Holdings did not give its consent. On
2 September 2019, Coral and Ash Brook brought an urgent application in
the Gauteng Division of the High Court, Johannesburg (the high court).
They sought a declarator that the withholding by Capitec Holdings of its
approval or consent for the disposal of the sale shares pursuant to the
settlement agreement was unreasonable as contemplated in clause 13.7 of
the subscription agreement and in breach of Capitec Holdings’ duties of
good faith in terms of clause 13.11 of the subscription agreement,
alternatively, at common law. In addition, mandatory relief was sought,
directing Capitec Holdings to give its approval or consent in terms of the
settlement agreement. The Fund, cited as the third respondent in the
application, brought a counter-application against Capitec Holdings for an

order that Capitec Holdings had no right under the subscription agreement
to prevent Coral from selling the sale shares to the Fund.

[5] The predicate of Coral and Ash Brook’s application was that
Capitec Holdings was obliged to consent to the sale by Coral of the sale
shares to the Fund. The counter-application of the Fund proceeded from a
different premise: the sale by Coral of the sale shares to the Fund does not
require the consent of Capitec Holdings in terms of the subscription
agreement. Capitec Holdings opposed both applications. However, in
doing so, Capitec Holdings acknowledged that Coral could sell its shares
to anyone without securing the consent of Capitec Holding. That did not
mean that Coral’s sale of the sale shares was without consequence.
Capitec Holdings contended that if the purchaser of the sale shares was not
a qualifying black person (in terms of the applicable legislation), then
Capitec Holdings enjoyed the right to require Coral to acquire an equal
number of Capitec Holdings shares, to replace the sale shares it had sold,
in terms of clause 8.3 of the subscription agreement.

[6] Two minority shareholders of Ash Brook, the fourth respondent,
Rorisang Basadi Investments (Pty) Ltd (Rorisang) and the fifth respondent,
Lemoshanang Investments (Pty) Ltd (Lemoshanang), were given leave by
the high court to intervene. They supported the application of Coral and
Ash Brook and the relief claimed by them.

[7] The applications were heard in the high court by Vally J. He found
for Coral and Ash Brook and determined that Capitec Holding’s refusal to
consent to the sale of the sale shares was in breach of its contractual and
common law duties of good faith and reasonableness and ordered
Capitec Holdings to consent to the sale within two days of the grant of the

order. Capitec Holdings was also ordered to pay the costs of Coral and
Ash Brook, and the costs of the Fund and the two intervening parties,
Rorisang and Lemoshanang.

[8] Vally J refused Capitec Holdings leave to appeal these orders. This
Court however granted leave. We were informed that as between
Capitec Holdings and the Fund, the matter (including the question of costs)
had become settled. This Court need not further consider the appeal against
the costs order granted in favour of the Fund.

Mootness
[9] Coral, Ash Brook, Rorisang and Lemoshanang submitted to us that
the decision of this Court will have no practical effect or result. In
consequence, in terms of s 16(2)(a) of the Superior Court’s Act 10 of 2013,
the appeal should be dismissed.

[10] In order to decide the question of mootness, it is necessary to refer
to certain evidence that formed part of an application by Capitec Holdings
to adduce further evidence on appeal. The application was not opposed.
And we granted the application. The evidence concerns transactions that
occurred in November and December 2019, and their consequences.

[11] The judgment of the high court was handed down on
5 November 2019. Capitec Holdings was ordered to furnish its consent
within two days. An application for leave to appeal was brought on
7 November 2019, which Vally J dismissed on 11 November 2019. On
13 November 2019, Capitec Holdings sought leave to appeal from this
Court. Whilst that application was pending, Capitec Holdings learnt that
the Fund and the Regiment Parties had entered into a fourth addendum to

the settlement agreement. This agreement, dated 19 November 2019
(the November 2019 transaction), required Coral to lend 810 228
Capitec Holdings
shares
to
a
wholly
owned
subsidiary
of
Regiments Capital, K2019495062 (Pty) Ltd (K2019). K2019 would then
sell these shares to the Fund, and K2019 undertook to cede its rights to the
proceeds of the sale to Coral.

[12] Capitec Holdings indicated that it considered the loan and sale of the
shares to be a sham – the real transaction was the sale by Coral of the
sale shares to the Fund. Since, in the opinion of Capitec Holdings, the
majority of the beneficiaries of the Fund were white, on 3 December 2019,
Capitec Holdings, in terms of clause 8.3 of the subscription agreement,
requested Coral to reacquire 810 228 Capitec Holdings shares, to be
registered in its name within 30 days. This Coral declined to do.

[13] In January 2020, The Fund wrote to Capitec Holdings to inform it
that the parties to the settlement agreement would move the high court to
have the settlement agreement, including the fourth addendum, made an
order of court. Capitec Holdings took up the position that it was not a party
to the settlement agreement; that it would not oppose the order sought, but
that this constituted no waiver of its rights to appeal the order of the
high court and to bring proceedings to compel Coral to reacquire 810 228
Capitec Holdings shares.

[14] On 17 July 2020, Meyer J made the settlement agreement, including
the fourth addendum, an order of court. Capitec Holdings pursued its
appeal to this Court, and on 7 January 2021 submitted its dispute with Coral
to arbitration claiming that Coral was obliged to reacquire 810 228
Capitec Holdings shares.

[15] Coral and Ash Brook submitted that the appeal before this Court had
become moot. The sale of shares to the Fund had taken place pursuant to
the fourth addendum of the settlement agreement. This had occurred after
the order of Vally J had been handed down, and without reliance upon this
order. Rather, the Fund, Coral and Ash Brook, relying upon
Capite  Holdings’ position that the sale of Capitec Holdings shares did not
require its consent, proceeded with the sale, which had taken place. In
consequence, it was submitted, the appeal was of no practical effect or
result.

[16] Capitec Holdings resisted this submission. It contended that it had,
in terms of clause 10 of the subscription agreement, submitted its dispute
with Coral to arbitration. In the arbitration, Capitec Holdings seeks an
award directing Coral to acquire and register the 810 228 Capitec Holdings
shares in terms of clause 8.3 of the subscription agreement. If the orders of
the high court were to stand, and this appeal dismissed for mootness, Coral
and Ash Brook would enjoy a defence in the arbitration. The high court
declared that Capitec Holdings was required to give its consent to the sale
of the shares and ordered it to do so. This order, in effect, permitted the
sale of shares to the Fund, without Capitec having recourse to compel Coral
to
reacquire
the
shares.
The
high
court
judgment
rendered
Capitec Holdings’ claim in the arbitration res judicata. Hence, the appeal
before this Court continued to have a practical effect because, if the appeal
succeeded, it would preserve Capitec Holdings’ claim in the arbitration.

[17] Counsel for Coral and Ash Brook disavowed any reliance upon the
high court’s order for the purposes of the arbitration. With that
undertaking, so counsel submitted, the appeal was moot. Counsel for
Capitec Holdings accepted the undertaking, but he submitted that the

disavowal did not result in mootness. This was so because, should Capitec
Holdings prevail in the arbitration, Coral would be required to acquire
810 230 Capitec Holdings shares. These shares would remain subject to
the subscription agreement. The high court’s judgment would then stand
as to the duties of Capitec Holdings to give its consent to the future sale of
the shares held by Coral – the very matter that is appealed to this Court.

[18] Central to the appeal before us is the question as to how to interpret
clause 8.3 of the subscription agreement. This provision governs the basis
upon which Coral may sell its Capitec Holdings shares. The high court
concluded that Capitec Holdings was in breach of a duty resting upon it to
consent to the sale of these shares. Capitec Holdings contended on appeal
that it owed no such duty. In my view, this remains a live dispute between
the parties. If the award of the arbitrator requires Coral to acquire the same
number of shares that it has sold, Coral and Capitec Holdings will return
to the very position that gave raise to their original dispute – is
Capitec Holdings
required
to
consent
to
any
future
sale
of
Capitec Holdings shares by Coral? The high court imposed a duty on
Capitec Holdings to do so. The arbitrator will not determine this issue
because Coral and Ash Brook disavow the high court’s judgment for the
purposes of the arbitration and do not rely upon consent as the basis upon
which the Fund purchased the sale shares. However, Coral and Ash Brook
did not abandon the judgment of the high court. On the contrary, they have
made every effort, in the course of this appeal, to support its reasoning and
sustain the order made by the high court. In these circumstances, the
high court’s judgment at present determines the duties of Capitec Holdings
should Coral decide to sell its shares. Whether the high court was correct
to impose these duties upon Capitec Holdings will be resolved in the appeal
before us.

[19] This Court has a discretion to entertain the merits of an appeal, even
where the matter is moot.1 Where a case poses a legal issue of importance
for the future that requires adjudication, that may incline the court to hear
the appeal. The appeal before us, for the reasons given, is of practical
consequence. It is not moot. But even if it were, the interpretation of
clause 8.3 is a legal issue of consequence for the future of the parties’
commercial relationship. That would warrant the exercise of our discretion
to hear the merits of the appeal. I accordingly decline to dismiss the appeal
on the basis of mootness.

[20] Rorisang and Lemoshanang supported Coral and Ash Brook in their
submission that the appeal was moot. They added one submission of their
own. In December 2019, Ash Brook repurchased their shares and Rorisang
and Lemoshanang ceased to be minority shareholders of Ash Brook. This
was done without seeking the consent of Capitec Holdings. Accordingly,
the very issue that had actuated Rorisang and Lemoshanang to intervene in
the application before the high court had fallen away and the appeal, for
this reason, had become moot.

[21] This submission cannot prevail. Rorisang and Lemoshanang did not,
upon their intervention, seek independent relief from the high court in
respect of their shareholding in Ash Brook. They intervened to support the
relief sought by Coral and Ash Brook in respect of the sale shares. The
orders granted by the high court concerned the sale by Coral of the sale
shares to the Fund. Nor order was sought or made concerning the sale of
Ash Brook shares by Rorisang and Lemoshanang. They opposed the grant
of leave to appeal and filed heads of argument in this Court seeking to have

1 Qoboshiyane N O and Others v Avusa Publishing Eastern Cape (Pty) Ltd and Others [2012] ZASCA
166; 2013 (3) SA 315 (SCA) para 5.

the appeal dismissed. Rorisang and Lemoshanang could have withdrawn
when, as they contend, the appeal no longer affected their interests. They
did not do so. The issue of mootness stands or falls on the case made for it
by Coral and Ash Brook. I have found that Coral and Ash Brook have failed
to make out a case for mootness. Accordingly, if the appeal remains live in
respect of the principal litigants, there is no basis to rule that the appeal is
moot as against Rorisang and Lemoshanang as intervenors.

The merits
[22] The issue that lies at the heart of this appeal is this: was
Capitec Holdings’ consent required before Coral could sell the sale shares
to the Fund, and if it was, did Capitec Holdings owe duties of good faith
and reasonableness to Coral, which Capitec Holdings breached in failing
to consent to the sale?

[23] The high court found that Capitec Holdings’ consent was required
for the sale of shares to take place, and Capitec Holdings was in breach of
its duties of good faith and reasonableness in failing to consent to the sale.
As a result, the high court issued an order declaring that Capitec Holdings’
refusal to consent to the sale was in breach of its contractual and common
law duties of good faith. The high court, in addition, issued a mandamus
requiring Capitec Holdings to grant its consent to the sale within two
working days.

[24] The reasoning of the high court proceeded in the following way.
Capitec Holdings had in the past required and granted its consent to sales
by Coral of Capitec Holdings shares. Yet, in the proposed sale by Coral of
the sale shares to the Fund, Capitec changed its stance. Capitec Holdings’
position (in agreement with the Fund) was that its consent was not required

for Coral to sell the sale shares. However, Coral then faced the risk that
Capitec Holdings would require Coral to repurchase an equivalent number
of shares should Capitec Holdings form the opinion that the purchaser of
the sale shares was not a qualifying black person. This change, without
proper explanation, was a failure by Capitec to act in good faith. That
breach, taken together with Coral’s reasonable expectation that it should
know whether it was running the risk of having to repurchase the same
number of shares that it wished to sell, meant that, according to Vally J,
‘justice can only be dispensed if the matter is approached on the basis that
Capitec’s consent is required for the sale’.

[25] Our analysis must commence with the provisions of the subscription
agreement that have relevance for deciding whether Capitec Holdings’
consent was indeed required. The much-cited passages from Natal Joint
Municipal Pension Fund v Endumeni Municipality (Endumeni)2 offer
guidance as to how to approach the interpretation of the words used in a
document. It is the language used, understood in the context in which it is
used, and having regard to the purpose of the provision that constitutes the
unitary exercise of interpretation. I would only add that the triad of text,
context and purpose should not be used in a mechanical fashion. It is the
relationship between the words used, the concepts expressed by those
words and the place of the contested provision within the scheme of the
agreement (or instrument) as a whole that constitutes the enterprise by
recourse to which a coherent and salient interpretation is determined. As
Endumeni emphasised, citing well-known cases, ‘[t]he inevitable point of
departure is the language of the provision itself’.3

2 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13;[2012] 2 All SA 262
(SCA); 2012 (4) SA 593 (SCA) (Endumeni) para 18.
3 Endumeni para 18.

[26] None of this would require repetition but for the fact that the
judgment of the high court failed to make its point of departure the relevant
provisions of the subscription agreement. Endumeni is not a charter for
judicial constructs premised upon what a contract should be taken to mean
from a vantage point that is not located in the text of what the parties in
fact agreed. Nor does Endumeni licence judicial interpretation that imports
meanings into a contract so as to make it a better contract, or one that is
ethically preferable.

[27] Clause 8.3 of the subscription agreement reads as follows:
‘Save for the provisions of the Facility Letter, should [Coral] sell, alienate, donate,
exchange, encumber, or in any manner endeavour to dispose (“sold”) any of the
[Capitec] Holdings Shares to any entity or person who, in [Capitec] Holdings’ opinion,
does not comply with the BEE Act and Codes, [Capitec Holding] will determine the
number of [Capitec] Holdings Shares sold and [Coral] will within 30 days after
requested thereto by [Capitec] Holdings acquire an equal number of [Capitec] Holdings
shares and cause same to be registered in [Coral’s] name.’
The identification of the entities in square brackets is my addition.

[28] A plain reading of clause 8.3 indicates that the parties to the
subscription agreement regulated the rights and obligations of Coral and
Capitec Holdings, should it occur that Coral sold, in any of the ways
referenced by that term as defined, any of the Capitec Holdings shares. The
Capitec Holdings shares are defined to mean the 10 million ordinary shares
for which Coral subscribed. Not every sale by Coral of these shares is
caught by the provision. Rather, it is the sale of Capitec Holdings shares
by Coral to an entity or person who, in the opinion of Capitec Holdings,
does not comply with the Broad-Based Black Economic Empowerment
Act 53 of 2003 (the BBBEE Act) and its Codes. Such a sale gives rise to
rights enjoyed by Capitec Holdings and obligations that burden Coral. I

will style such a sale as ‘a demarcated sale’. Should Coral conclude a
demarcated sale, Capitec Holdings enjoys the right to determine the
number of Capitec Holdings shares sold and Coral has the obligation,
within 30 days of being requested to do so by Capitec Holdings, to acquire
an equal number of Capitec Holdings shares and cause such shares to be
registered in its name.

[29] Nothing in the text of clause 8.3 constrains Coral from selling
Capitec Holdings shares. If Coral does so, and the transaction is a
demarcated sale, then Capitec Holdings may exercise its right to require
Coral to acquire an equal number of Capitec Holdings shares. The consent
of Capitec Holdings is not referenced in clause 8.3 as a requirement that
must be met before Coral may conclude a demarcated sale. That the
conclusion of a demarcated sale by Coral will have the consequence that
Coral is burdened with the obligation to make whole its shareholding of
Capitec Holdings shares does not make consent a requirement to conclude
a designated sale. The text of clause 8.3 offers no indication that the
consent of Capitec Holdings was required so as to permit Coral to sell the
sale shares to the Fund.

[30] Nor does the context of clause 8.3, within the scheme of clause 8,
disturb the plain meaning of clause 8.3. Clause 8 of the subscription
agreement deals with three categories of shareholder: selling restrictions
upon shareholders of Ash Brook (clauses 8.1 and 8.2), the consequences of
sales by Coral of its shareholding in Capitec Holdings (clause 8.3), and the
restraint upon Ash Brook selling its shares in Coral (clause 8.4). What it
signifies is that the shareholders of Ash Brook are prohibited from selling
their shares, except under conditions stipulated in clause 9.1. Clause 8.2
sets out the remedial consequences of a breach of this prohibition. The

introductory words of clause 9.1 reads as follows: ‘No shareholder of
[Ash Brook] (“BEE shareholder”) shall sell . . . its shares in [Ash Brook],
except under the conditions as set out below’. Clause 8.4 also prohibits
Ash Brook from selling its shares in Coral, and provides for the remedial
consequences of a breach. Clause 8.4 commences with the words,
‘[Ash Brook] may not sell . . . or in any other manner endeavour to dispose
(“sell or sold”) any of its shares in [Coral] ’. By contrast, clause 8.3
contains no prohibition upon the sale by Coral of Capitec Holdings shares.
Clause 8.3 simply specifies the consequences of such a sale when it is a
demarcated sale.

[31] Clause 8 differentiates its treatment of the three types of
shareholders. The shareholders of Ash Brook and Ash Brook as a
shareholder of Coral are placed under a prohibition as to the sale of their
shares. But Coral is not: Coral may sell its Capitec Holdings shares, but it
must endure the consequences of doing so. Where the parties to the
subscription agreement wished to prohibit a shareholder from selling its
shares, this was made plain in clear language. Clause 8.3 contains no
language of prohibition. Clause 8 as a whole provides context that
clause 8.3 imports no requirement of consent.

[32] Counsel for Ash Brook and Coral submitted that, notwithstanding
the text of clause 8.3, there was a textual basis in the subscription
agreement that required Coral to procure Capitec Holdings’ consent.
Clauses 13.6 and 13.7 of the subscription agreement reads as follows:
‘13.6 Save as otherwise herein provided, neither this Agreement nor any part, share or
interest herein, nor any rights or obligations hereunder may be ceded, assigned, or
otherwise transferred without the prior written consent of the other party.

13.7 Any consent or approval required to be given by any Party in terms of this
Agreement will, unless specifically otherwise stated, not be unreasonably withheld.’
Counsel submitted that the sale by Coral of the sale shares to the Fund falls
within the ambit of clause 13.6. Coral thus required the consent of
Capitec Holdings which, in accordance with clause 13.7, could not be
unreasonably withheld by Capitec Holdings.

[33] This submission cannot be sustained. First, clause 13.6 prohibits
cession, assignment or transfer without prior written consent. To what does
this prohibition have application? Clause 13.6 provides the answer. It is to
the subscription agreement; any part, share or interest in the subscription
agreement; and ‘any rights or obligations hereunder’. The sale by Coral of
the sale shares is not a cession, assignment or transfer of the subscription
agreement or any part thereof. Coral did not cede any of its personal rights
under the subscription agreement to the Fund. Nor did Coral assign or
transfer its rights and obligations under the subscription agreement to the
Fund. Coral sold the sale shares, comprising its shareholding of
Capitec Holdings shares, to the Fund. This simply marks out the distinction
between the subject matter of the sale, that is the sale shares, and the subject
matter of a cession or assignment, that is the rights and obligations of Coral
under the subscription agreement. Simply put, the submission fails to
distinguish the sale of shares by Coral from the personal rights and
obligations of Coral under the subscription agreement that regulate the sale
of such shares. The sale of shares by Coral is not a cession of rights, nor an
assignment of Coral’s rights and obligations under the subscription
agreement. The subject matter to which the prohibition in clause 13.6 has
application does not apply to the sale shares. Hence no consent is required
from Capitec Holdings, in terms of clause 13.6, so as to permit Coral to
sell the sale shares to the Fund.

[34] Second, clause 13.6 commences with a savings provision: ‘save as
otherwise herein provided’. Assuming, arguendo, that the sale shares did
fall within clause 13.6, the savings provision would apply. Clause 8,
interpreted as I have explained, prohibits the sale of certain shares by
Ash Brook and its shareholders and permits the sale by Coral of its
Capitec Holdings shares. The conceptual structure of clause 8 works on the
basis of a binary distinction between prohibition and permission. It has
nothing to do with consent, and makes no mention whatever of consent.
Clause 8.3 would thus fall within the savings provision of clause 13.6.

[35] Counsel for Ash Brook and Coral placed some emphasis on the
manner in which Capitec Holdings had implemented the subscription
agreement. Capitec Holdings had itself understood the subscription
agreement to require its consent before Coral was permitted to make a
demarcated sale. This, so it was submitted, was of interpretative
significance in determining the meaning of clause 8.3. Reliance was placed
on the decision of Comwezi Security Services (Pty) Ltd v Cape
Empowerment Trust Limited (Comwezi).4

[36] In Comwezi, this Court explained that, even in the absence of
ambiguity, the conduct of the parties in implementing the agreement may
provide clear evidence as to how reasonable persons of business construed
a disputed provision in a contract. Capitec Holdings acknowledged that in
two transactions, one in 2012 and the other in 2017, Capitec Holdings had
consented to the sale by Coral of its Capitec Holdings shares.

4 Comwezi Security Services (Pty) Ltd v Cape Empowerment Trust Limited (Comwezi) [2012] ZASCA
126 para 15.

[37] In addition, in the correspondence that preceded the application that
was brought in this case, Capitec Holdings and its attorneys contended that
the proposed sale by Coral of the sale shares was prohibited and a breach
of the subscription agreement, absent consent, which Capitec Holdings had
declined to give. Coral and Ash Brook also rely upon passages in the
answering affidavit of Capitec Holdings, as also an open offer made by
Capitec Holding just prior to the commencement of the hearing before the
high court. In the open offer, Capitec Holdings set out the basis upon which
it would consent to sale by Coral of its Capitec Holdings shares.
Capitec Holdings disputes that the passages in its affidavit and the open
offer evidence any acknowledgment that its consent was required.
Capitec Holdings contends that their stance in the answering affidavit was
to disavow consent and the open offer should be understood as an attempt
to settle the dispute, and not a reflection upon their construal of clause 8.3.
[38] Coral and Ash Brook contend that the manner in which the parties
implemented the subscription agreement is relevant evidence as to what
clause 8.3 means. This contention gives rise to an issue that has long
troubled our courts, and those in other jurisdictions that draw upon the
common law tradition. The issue is this. Under the expansive approach to
interpretation laid down in Endumeni, extrinsic evidence is admissible to
understand the meaning of the words used in a written contract. Such
evidence may be relevant to the context within which the contract was
concluded and its purpose, and this is so whether or not the text of the
contract is ambiguous, either patently or latently. On the other hand, the
parol evidence rule is an important principle that remains part of our law.
Affirmed by this Court in KPMG Chartered Accountants (SA) v Securefin
Limited and Another (KPMG) and The City of Tshwane Metropolitan

Municipality v Blair Atholl Homeowners Association (Blair Atholl),5 the
parol evidence or integration rule requires that, save in exceptional
circumstances such as fraud or duress, where the parties to a contract have
reduced their agreement to writing and assented to that writing as a
complete and accurate integration of the contract, extrinsic evidence is
inadmissible to contradict, add to or modify the contract. How do these
principles cohabit?

[39] In the recent decision of University of Johannesburg v Auckland
Park Theological Seminary and Another (University of Johannesburg),6
the Constitutional Court affirmed that an expansive approach should be
taken to the admissibility of extrinsic evidence of context and purpose,
whether or not the words used in the contract are ambiguous, so as to
determine what the parties to the contract intended. In a passage of some
importance, the Constitutional Court sought to clarify the position as
follows:
‘Let me clarify that what I say here does not mean that extrinsic evidence is always
admissible. It is true that a court’s recourse to extrinsic evidence is not limitless because
“interpretation is a matter of law and not of fact and, accordingly, interpretation is a
matter for the court and not for witnesses”. It is also true that “to the extent that evidence
may be admissible to contextualise the document (since “context is everything”) to
establish its factual matrix or purpose or for purposes of identification, one must use it
as conservatively as possible”. I must, however, make it clear that this does not detract
from the injunction on courts to consider evidence of context and purpose. Where, in a
given case, reasonable people may disagree on the admissibility of the contextual
evidence in question, the unitary approach to contractual interpretation enjoins a court

5 KPMG Chartered Accountants (SA) v Securefin Limited and Another [2009] ZASCA 7; [2009] 2 All
SA 523 (SCA); 2009 (4) SA 399 (SCA) para 39; The City of Tshwane Metropolitan Municipality v Blair
Atholl Homeowners Association [2018] ZASCA 176; [2019] 1 All SA 291 (SCA); 2019 (3) SA 398
(SCA) paras 64-77.
6 University of Johannesburg v Auckland Park Theological Seminary and Another [2021] ZACC 13
(Universisty of Johannesburg).

to err on the side of admitting the evidence. There would, of course, still be sufficient
checks against any undue reach of such evidence because the court dealing with the
evidence could still disregard it on the basis that it lacks weight. When dealing with
evidence in this context, it is important not to conflate admissibility and weight.’7

[40] This seeks to give a very wide remit to the admissibility of extrinisic
evidence of context and purpose. Even if there is a reasonable disagreement
as to whether the evidence is relevant to context, courts should incline to
admit such evidence, not least because context is everything. The courts
may then weigh this evidence when they undertake the interpretative
exercise of considering text, context and purpose.

[41] The Constitutional Court in University of Johannesburg also
recognised the parol evidence rule in our law. It sought to reconcile the
generous admissibility of extrinsic evidence of context and purpose and the
strictures of the parol evidence rule in the following way:
‘The integration facet of the parol evidence rule relied on by the Supreme Court of
Appeal is relevant when a court is concerned with an attempted amendment of a
contract. It does not prevent contextual evidence from being adduced. The rule is
concerned with cases where the evidence in question seeks to vary, contradict or add to
(as opposed to assist the court to interpret) the terms of the agreement. . . .’8

[42] This reconciliation requires some reflection. It recalls one of the
most important debates as to the foundations of the law of contract. Is the
meaning of a contract to be understood on the basis of the subjective
intentions of the parties to the contract or the objective manifestations of
their consensus? The rationale of the parol evidence rule is based on the
value of objectivism. Parties enter into written contracts that include

7 University of Johannesburg para 68.
8 Ibid para 92.

clauses affirming the writing to be the exclusive memorial of the parties’
agreement so as to permit certainty as to the agreement, and avoid making
every agreement the starting point of an evidential battle.

[43] Many courts have associated the parol evidence rule with the
primacy of clear language in the interpretation of contracts. In Trident
Center v Connecticut General Life Insurance Co,9 a judge in the
United States had this to say:
‘Two decades ago the California Supreme Court in Pacific Gas. . . turned its back on
the notion that a contract can ever have a plain meaning discernable by a court without
resort to extrinsic evidence. The court reasoned that contractual obligations flow not
from the words of the contract, but from the intention of the parties. . . Under Pacific
Gas, it matters not how clearly a contract is written, nor how completely it is integrated,
nor how carefully it is negotiated, nor how squarely it addresses the issue before the
court: the contract cannot be rendered impervious to attack by parol evidence.’10
If then, on this view, a written contract has a plain meaning and the writing
is the exclusive memorial of the contract, the parol evidence rule excludes
extrinsic evidence that would alter, add to or vary that plain meaning.

[44] The opposing position, powerfully articulated by Corbin,11 is this.
The parol evidence rule simply reflects the agreement between the parties
that the written document constitutes their exclusive agreement. It
supersedes earlier agreements, whether written or oral, and excludes
evidence of such agreements. The parol evidence rule is not a rule as to the
admission of evidence for the purpose of interpretating the meaning of the
written agreement that constitutes the parties’ exclusive agreement. If the
plain meaning of a contract is rejected conceptually or enjoys no primacy

9 Trident Center v Connecticut General Life Insurance Co 847 F.2d 564 (9th Circ.1988).
10 Ibid at 568-70.
11 A position articulated by A Corbin in Corbin On Contracts rev. ed. (1960) at 108-110 and strongly
influential.

in the interpretative exercise, then extrinsic evidence as to meaning will
enjoy a very considerable remit, and the parol evidence rule’s exclusionary
force will be greatly reduced.

[45] There is logical force in the observation that the identification of a
contract is one thing, its meaning another. However, the practical
consequence of this distinction is that the evidence excluded under the
parol evidence rule as contradicting, adding to or varying the written
contract is then admitted for the purpose of interpreting the contract. This
has led some courts to seek a via media. Under this formulation, extrinsic
evidence will only be admitted if the contract is reasonably susceptible of
the meaning for which the evidence is tendered or amounts to objective
evidence to show ambiguity.12

[46] The Constitutional Court has placed our law firmly within the realm
defined by Corbin’s position. The Constitutional Court has rejected the
idea of the plain meaning of the text or its primacy, since words without
context mean nothing, and context is everything. It has given a wide remit
to the admission of extrinsic evidence as to context and purpose so as to
interpret the meaning of a contract. Reasonable disagreements as to the
relevance of such evidence should favour admitting the evidence and the
weight of the evidence may then be considered.

[47] I offer a few observations, as to the implications of what the
Constitutional Court has decided in University of Johannesburg. First, it is
inevitable that extrinsic evidence that one litigant contends to have the
effect of contradicting, altering or adding to the written contract, the other

12 AM International, Inc v Graphic Management Associates, Inc 44 F.3d 572 (7th Circ. 1995).

litigant will characterise as extrinsic evidence relevant to the context or
purpose of the written contract. Since the interpretative exercise affords the
meaning yielded by text no priority and requires no ambiguity as to the
meaning of the text to admit extrinsic evidence, the parol evidence rule is
likely to become a residual rule that does little more than identify the
written agreement, the meaning of which must be determined. That is so
for an important reason. It is only possible to determine whether extrinsic
evidence is contradicting, altering or adding to a written contract once the
court has determined the meaning of that contract. Since meaning is
ascertained by recourse to a wide-ranging engagement with the triad of
text, context and purpose, extrinsic evidence may be admitted as relevant
to context and purpose. It is this enquiry into relevance that will determine
the admissibility of the evidence. Once this has taken place, the
exclusionary force of the parol evidence rule is consigned to a rather
residual role.

[48] Second, University of Johannesburg recognises that there are limits
to the evidence that may be admitted as relevant to context and purpose.
While the factual background known to the parties before the contract was
concluded may be of assistance in the interpretation of the meaning of a
contract, the courts’ aversion to receiving evidence of the parties’ prior
negotiations and what they intended (outside cases of rectification) or
understood the contract to mean should remain an important limitation on
what may be said to be relevant to the context or purpose of the contract.
Blair Atholl rightly warned of the laxity with which some courts have
permited evidence that traverses what a witness considers a contract to
mean. That is strictly a matter for the court. Comwezi is not to be
understood as an invitation to harvest evidence, on an indiscriminate basis,
of what the parties did after they concluded their agreement. The case made

it plain such evidence must be relevant to an objective determination of the
meaning of the words used in the contract.13

[49] Third, Endumeni has become a ritualised incantation in many
submissions before the courts. It is often used as an open-ended permission
to pursue undisciplined and self-serving interpretations. Neither Endumeni,
nor its reception in the Constitutional Court, most recently in University of
Johannesburg, evince skepticism that the words and terms used in a
contract have meaning.

[50] Endumeni simply gives expression to the view that the words and
concepts used in a contract and their relationship to the external world are
not self-defining. The case and its progeny emphasise that the meaning of
a contested term of a contract (or provision in a 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. Meaning is ultimately
the most compelling and coherent account the interpreter can provide,
making use of these sources of interpretation. It is not a partial selection of
interpretational materials directed at a predetermined result.

[51] Most contracts, and particularly commercial contracts, are
constructed with a design in mind, and their architects choose words and
concepts to give effect to that design. For this reason, interpretation begins
with the text and its structure. They have a gravitational pull that is
important. The proposition that context is everything is not a licence to

13 Comwezi para 15.

contend for meanings unmoored in the text and its structure. Rather,
context and purpose may be used to elucidate the text.

[52] What then is to be made of the reliance that Coral and Ash Brook
have placed upon the manner in which Capitec Holdings has understood
and implemented the subscription agreement? Since Capitec Holdings
required and gave its consent to the prior transactions of Coral, that must
surely, so it was contended, have significance for the interpretation of
clause 8.3. So too, Coral and Ash Brook submitted, Capitec Holdings’
initial stipulation for consent in respect of the sale of shares is of similar
evidentiary import.

[53] The first issue that then arises is whether this evidence is admissible
for the purpose of interpreting clause 8.3? Coral and Ash Brook rely on
this extrinisic evidence as relevant context so as to interpet clause 8.3.
University of Johannesburg renders this contention hard to resist for the
reasons I have explained. Prior to this decision I should have been inclined
to hold that since nothing in the text of clause 8.3, nor in clause 8, nor in
the subscription agreement as a whole, provides any basis to conclude that
Capitec Holdings’ consent was required, the evidence that is sought to be
admitted imports a requirement of consent, and thereby alter the clear terms
of what the subscription provides. That is precisely what the parol evidence
rule excludes from consideration. However, on my understanding of
University of Johannesburg, since the text of an agreement enjoys no
interpretational primacy, and the meaning of the text must be determined
before a court can decide whether evidence seeks to alter the terms of that
contract, the parol evidence rule does not govern admissibility. Rather, the
question is whether the evidence is relevant to context so as to ascertain
the meaning of the contract.

[54] In conformity with University of Johannesburg, I do think the
evidence must be judged relevant and considered. How the parties to the
subscription agreement conducted themselves after the conclusion of the
agreement may have some relevance for the purpose of deciding upon the
meaning of clause 8.3. Capitec Holdings certainly conducted itself after the
conclusion of the subscription agreement, nothwithstanding its later
change of heart, on the basis that its consent was required. That is evidence
of some relevance to an objective interpretation of clause 8.3 because it
may be probative, as suggested in Comwezi, as to how reasonable business
people, situated as they were, and knowing what they did, construed
clause 8.3. This finding is made in conformity with the dicta in University
of Johannesburg, to which I have referred, that the test of relevance is
deferential to reasonable differences as to admissibility and that weighing
such evidence is to be preferred to excluding the evidence. In addition,
since the evidence is claimed to be relevant to context and hence to the
meaning of clause 8.3, contrary indications as to the meaning of the clause
do not oust the consideration of this evidence.

[55] The evidence concerning Capitec Holdings’ conduct that required
Coral to obtain consent before it was permitted to make a demarcated sale
is summarised above. That evidence makes it plain that Capitec Holdings
thought that its consent was required and conducted itself on this basis. So
too did Coral. However, Capitec Holdings then thought differently,
prompted by the stance of the Fund. The Fund was not a party to the
subscription agreement, but was an interested party, taking a commercial
view of clause 8.3.

[56] Weighing this evidence, as I do, I cannot find that the conduct of
Coral and Capitec Holdings after the conclusion of the subscription

agreement lends context to clause 8.3 that displaces the clear meaning of
the clause derived from the text of the clause, understood in the context of
the structure of the agreement as a whole, and its proclaimed purpose – the
desire of Capitec Holdings to increase its black shareholding in conformity
with the BBE Act and its codes. The conduct is equivocal.
Capitec Holdings certainly acted on their understanding that clause 8.3
required its consent before Coral could conclude a demarcated sale. Coral
had the same understanding. But Capitec Holdings changed its stance,
based upon the position of the Fund. That a party has an understanding of
its rights under a contract and then changes its stance may be cynical or it
may be based on its better appreciation of the contract. This ultimately
matters little because the weight of the evidence of its understanding of
clause 8.3 does not displace the outcome of the interpretative exercise, set
out above, which shows that the meaning of clause 8.3 imports no
requirement that Capitec Holdings’ consent is necessary for Coral to
conclude a demarcated sale.

[57] Finally, counsel for Coral and Ash Brook placed some reliance upon
what they contended was a business-like interpretation of clause 8.3. The
high court’s reasoning was to like effect. The commercial risk to Coral, so
it was argued, of being burdened with a duty to repurchase
Capitec Holdings shares upon making a designated sale was a risk no
reasonable business would run. Prior consent would avoid this risk and
give business efficacy to clause 8.3. This contention is unavailing.
Clause 8.3 provides the mechanism by which Capitec Holdings sought to
retain its black shareholding. Either Coral must sell its shares to a black
purchaser or, if not, repurchase an equivalent number of shares, upon
making a designated sale. That Capitec Holdings’ wish to retain its black
shareholding was commercially restrictive of Coral’s freedom to dispose

of its shareholding does not make the restraint wanting for business good
sense. As we shall see, Coral did not challenge the restraint as an affront to
public policy. Clause 8.3 simply privileges the interests of
Capitec Holdings. That was the bargain Coral and Ash Brook made. There
is no reason why they should not be held to it.

[58] Nor is it the case that, because a sale by Coral of its Capitec Holdings
shares to a black purchaser would not burden the black purchaser with the
obligations of clause 8.3, there is reason to make prior consent a necessary
importation so as to lend business efficacy to clause 8.3. That the burdens
placed upon Coral in clause 8.3, so as to retain the black shareholding of
Capitec Holdings, may not have been made transmissible in perpetuity,
permitted Coral some freedom to dispose of its shares to a black purchaser.
That clause 8.3 was not more rigorously restrictive, does not make the
provision unbusinesslike.

[59] It follows that the high court was in error in finding that the
subscription agreement required the consent of Capitec Holdings in order
that Coral could proceed with the sale to the Fund. The high court
proceeded from its assessment of the conduct of Capitec Holdings to its
conclusion as to the contents of the subscription agreement. The analysis
should have commenced with an interpretation of what the subscription
agreement provided. Had the high court done so, the meaning of clause 8.3
would have become plain.

Good faith
[60] Having found, as I do, that the subscription agreement does not
require that Capitec Holdings must consent to the sale by Coral of the sale
shares to the Fund, that would ordinarily have sufficed to conclude that the

orders made by the high court cannot stand. However, the high court
reasoned that Capitec Holdings was in ‘ . . . breach of its contractual as
well as its common law duty of good faith to Coral Lagoon’. This want of
good faith led the high court to adopt the following position, ‘. . . justice
can only be dispensed if the matter is approached on the basis that Capitec’s
consent is required for the sale’. Since Capitec Holdings had not acted ‘in
a manner consonant with its duty of good faith and reasonable conduct
towards Coral Lagoon’, the high court imposed upon Capitec Holdings an
order to provide the consent that, in the view of the high court,
Capitec Holdings had impermissibly withheld.

[61] The respondents in this Court also relied upon the contention that
Capitec Holdings failed to act in good faith and that, since good faith is a
duty that underpins the subscription agreement and arises at common law,
this too affords a basis upon which the orders of the high court may be
sustained. It is to these issues that I now turn.

[62] Vally J, in the high court, relied upon his minority judgment in
Atlantis Property Holdings CC v Atlantis Excel Service Station CC
(Atlantis Property)14 as the basis upon which the doctrine of good faith
required Coral to secure Capitec Holdings’ consent. This judgment offered
an expansive interpretation as to how the Constitutional Court had, in
various judgments, recognised the principle of good faith to ensure fairness
in the law of contract. Whether the high court was at large to prefer its
minority judgment in Atlantis Property for the purposes of its decision in
the present case, is a question of precedent with which I need not be further
concerned because the Constitutional Court has spoken decisively in

6 Atlantis Property Holdings CC v Atlantis Excel Service Station CC 2019 (5) SA 443 (GP).

Beadica 231 CC and Others v Trustees, Oregon Trust and Others
(Beadica)15 as to how good faith figures in our law of contract.

[63] Beadica affirms the following. First, the principle that contracts
freely and voluntarily entered into must be honoured remains central to the
law of contract. This principle, often captured under the phrase freedom of
contract, recognises that persons, through voluntary exchange, may freely
take responsibility for the promises they make, and have their contracts
enforced. Second, at common law, now infused with the values of the
constitution, there are principles expressed in the detailed doctrines that
make up the law of contract, that determine how freedom of contract is
exercised and contracts are enforced. Third, one such doctrine concerns the
enforcement of contract terms that offend against public policy. Both the
scope of public policy and its application, to invalidate contract terms,
should be undertaken with circumspection, but without timidity, in
upholding fundamental constitutional values. Fourth, while good faith
underlies the law of contract and informs its substantive rules, good faith
and fairness are not substantive, free-standing principles to which direct
recourse may be had so as to interfere with contractual bargains or decline
to enforce contracts.

[64] Beadica provides an authoritative interpretation of the cases, both in
this Court and in the Constitutional Court, that explain the role that
good faith plays in the law of contract. The high court’s reasoning based
upon good faith, and the respondents’ submissions in support of that
reasoning, cannot survive the exposition in Beadica.

7 Beadica 231 CC and Others v Trustees, Oregon Trust and Others [2020] ZACC 13; 2020 (5) SA 247
(CC).

[65] First, the high court’s judgment and order is premised on the notion
that Capitec Holdings was in breach of a contractual and common law duty
of good faith. It is not entirely clear what conceptual distinction was sought
to be drawn thereby. The law of contract is part of our common law.
Good faith is one of a number of principles that inform the substantive rules
that make up the law of contract. Good faith is not an abstract,
self- standing duty that may be imposed upon a party as a matter of the
law of contract so as to determine the terms upon which the parties to a
contract will be taken to have agreed.

[66] Second, I recognise that a showing of good faith between contracting
parties is a value that may figure in a court’s consideration of what
public policy demands, when a court is asked to consider whether the terms
of a contract offend against public policy. That is a supervisory power the
courts enjoy under the law of contract to ensure that the freedom of contract
we recognise is not used as a private mechanism that vacates fundamental
public values. But in the case before us, Coral and Ash Brook did not
complain that clause 8.3 of the subscription agreement was to be struck as
offensive to public policy. Good faith was not invoked for this purpose.
Rather, as we have seen, they sought to have clause 8.3 interpreted to
require the consent of Capitec Holdings.

[67] Third, insofar as recourse to good faith simply reflects the
commonplace observation that good faith underpins all contracts, this way
of casting the matter cannot yield the duty that the high court imposed upon
Capitec Holdings. That we take parties to a contract to act in good faith is
a norm of trust that informs many rules of the law of contract. It is also a
norm that may be relevant as to how we interpret what the parties agreed.
It is not a norm that can be utilised to decide what the parties should be

taken to have agreed and how they should act, in the interests of justice or
fairness.

Yet that is what the high court did. As I have endeavoured to show, there
is no interpretation of the subscription agreement that provides for the
requirement of consent. The high court found that because
Capitec Holdings had behaved in a contradictory way by holding out, on
occasions, that its consent was required, and then asserting that it was not,
justice required that the subscription agreement should be taken to require
Capitec Holdings’ consent. Whatever view is taken of Capitec Holdings’
volte face, it does not permit a court to impose an agreement that the parties
did not make – whether in the cause of good faith or justice or any other
abstract principle or virtue.

[68] Nor could the high court take the further step, having conjured the
requirement of consent, to then impose a duty upon Capitec Holdings to
give its consent. The high court found Capitec Holdings’ desire to hold
Coral to the terms of clause 8.3, so as to retain Coral as an empowerment
shareholder, unconvincing. It also found that Capitec Holdings was
ethically compromised in seeking to retain Coral as a shareholder, when
Regiments Capital, the majority shareholder of Ash Brook (Coral was a
wholly owned subsidiary), had, with the other Regiments Parties,
defrauded the Fund and was using the sale shares to make recompense to
the Fund’s pensioners. The judge’s views on business ethics cannot signify
to impute a duty that Capitec Holdings grant consent to a sale that the court
considers a desirable outcome. Capitec Holdings enjoyed a contractual
right to retain Coral as an empowerment shareholder. That was the bargain
that Coral and Ash Brook had struck. That the world might be a better place
if Coral were permitted to sell the sale shares without a repurchase

obligation, and thereby reimburse the Fund, is a judgment of no relevance
to the contractual rights and duties of the parties.

[69] Finally, there was some debate before us as to whether
Capitec Holdings had acknowledged that it owed a duty of good faith to
Coral and Ash Brook, arising from the subscription agreement. The high
court found this to be so, and Coral and Ash Brook sought to support this
finding. Capitec Holdings denied that its affidavit made any such
admission. It is unnecessary to resolve this dispute. If Capitec Holdings
undertook a duty of good faith in the subscription agreement, what was the
content of that duty? It could never entail that its consent was required
when clause 8.3 did not so provide. And if Coral did not require
Capitec Holdings’ consent, Capitec Holdings could hardly be in breach of
a duty to give consent that was not required of it.

[70] In sum, the ambitious efforts to use the concept of good faith to
reengineer the subscription agreement so as to require Capitec Holdings’
consent and then to find Capitec Holdings wanting for failing to give it
cannot prevail. The subscription agreement, properly interpreted, contains
no such provision. That Capitec Holdings wished to enforce its rights in
terms of the subscription agreement cannot be held to be a breach of good
faith. Nor can good faith be marshalled to require Capitec Holdings to give
consent, when none was required of it. Ultimately, what Coral and Ash
Brook were in reality seeking was a waiver by Capitec Holdings of its right
to require Coral to repurchase the equivalent number of shares it wished to
sell. Capitec Holdings had no obligation to do so, and invocations of good
faith cannot alter that position.

Conclusion
[71] For these reasons, the appeal is upheld. There was no disagreement
that the costs, including the costs of two counsel, should follow the result.
As indicated, the counter-application brought by the Fund under case
number 24805/17 was settled as between the Fund and Capitec Holdings.
The costs orders thus lie against Coral and Ash Brook, and the intervenors,
Rorisang and Lemoshanang, who opposed the appeal.

[72] The following order is made:
1 The appeal is upheld with costs, including the costs of two counsel.
2  Paragraphs 4 – 8 of the order of the high court are set aside and
replaced with the following:
‘2.1
The application under case number 30899/2019 is dismissed;
2.2
The applicants and the first and second Intervening Parties
in case number 30899/2019 shall pay the costs of the first
and second respondents, such costs to include the costs of
two counsel, where employed.’

________________________
D UNTERHALTER
ACTING JUDGE OF APPEAL

Appearances

For appellants:
A M Breitenbach SC, with him M Bishop
and P Wainwright

Instructed by:
Van der Spuy & Partners, Cape Town
Hill,
McHardy
&
Herbst
Inc.,
Bloemfontein

For 1st and 2nd respondents:
V Maleka SC, with him T Scott and M
Salukazana
Instructed by:
Mkhabela
Huntley
Attorneys
Inc.,
Sandton
McIntyre Van der Post, Bloemfontein

For 4th and 5th respondents:
T J B Bokaba SC, with him K van Heerden
and T Pooe
Instructed by:
Carol Coetzee & Associates, Fourways
Mavuya Inc Attorneys, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL

From:
The Registrar, Supreme Court of Appeal
Date:

09 JUNE 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form part of
the judgments of the Supreme Court of Appeal
Capitec Bank Holdings Limited and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others (470/2020)
[2021] ZASCA 99 (09 July 2021)
Today the Supreme Court of Appeal (SCA) handed down a judgment upholding the appeal against the Gauteng
Division of the High Court, Johannesburg with costs, including the costs of two counsel.
The first appellant, Capitec Bank Holdings Limited (Capitec Holdings), the first respondent, Coral Lagoon
Investments 194 (Pty) Ltd (Coral), and the second respondent, Ash Brook Investments 16 (Pty) Ltd (Ash Brook),
in December 2006, concluded a subscription of shares and shareholders agreement (the subscription agreement).
Pursuant to the subscription agreement, Coral subscribed for, and Capitec Holdings issued, 10 million ordinary
shares to Coral. Coral, in turn, was required to allot and issue shares to Ash Brook so as to constitute Ash Brook
as the only ordinary shareholder of Coral. This was done. The object of the subscription agreement was, as its
recital explains, to permit Capitec Holding to increase its black shareholding, and thereby fulfil its black
empowerment obligations.
Regiments Capital (Pty) Ltd (Regiments Capital) held a 59.82% interest in Ash Brook. On 8 August 2019,
Regiments Capital, and various parties related to it (the Regiments Parties), Coral and the third respondent, the
Transnet Second Defined Benefit Fund (the Fund), entered into a settlement agreement. The settlement agreement
required Regiments Capital and the Regiments Fund Managers to pay the Fund a settlement amount of
R500 million, together with interest, in settlement of the Fund’s claims against the Regiments Parties. Those
claims arose from litigation instituted by the Fund against the Regiments Parties. The Fund alleged that the
Regiments Parties had defrauded the Fund and sought to recover monies for the benefit of the Fund’s members.
The settlement amount was to be funded by the sale of 810 230 Capitec Holdings shares (the sale shares). The
proceeds of the sale were to be used to discharge the settlement amount owing to the Fund, with the balance of
the purchase price to be paid by the Fund to an account nominated by Coral.
Coral and the Fund sought to obtain the consent of Capitec Holdings for the disposal of the sale shares by Coral.
Capitec Holdings did not give its consent. On 2 September 2019, Coral and Ash Brook brought an urgent
application in the Gauteng Division of the High Court, Johannesburg (the high court). They sought a declarator
that the withholding by Capitec Holdings of its approval or consent for the disposal of the sale shares pursuant to
the settlement agreement was unreasonable as contemplated in clause 13.7 of the subscription agreement and in
breach of Capitec Holdings’ duties of good faith in terms of clause 13.11 of the subscription agreement,
alternatively, at common law. In addition, mandatory relief was sought, directing Capitec Holdings to give its
approval or consent in terms of the settlement agreement. The Fund, cited as the third respondent in the
application, brought a counter-application against Capitec Holdings for an order that Capitec Holdings had no
right under the subscription agreement to prevent Coral from selling the sale shares to the Fund.

The applications were heard in the high court by Vally J. He found for Coral and Ash Brook and determined that
Capitec Holding’s refusal to consent to the sale of the sale shares was in breach of its contractual and common
law duties of good faith and reasonableness and ordered Capitec Holdings to consent to the sale within two days
of the grant of the order. Capitec Holdings was also ordered to pay the costs of Coral and Ash Brook, and the
costs of the Fund and the two intervening parties, Rorisang and Lemoshanang. Vally J refused Capitec Holdings
leave to appeal these orders. This Court however granted leave.
The main issue in this appeal was whether Capitec Holdings’ consent was required before Coral could sell the
sale shares to the Fund, and if it was, did Capitec Holdings owe duties of good faith and reasonableness to Coral,
which Capitec Holdings breached in failing to consent to the sale? The high court found that Capitec Holdings’
consent was required for the sale of shares to take place, and Capitec Holdings was in breach of its duties of good
faith and reasonableness in failing to consent to the sale. As a result, the high court issued an order declaring that
Capitec Holdings’ refusal to consent to the sale was in breach of its contractual and common law duties of good
faith. The high court, in addition, issued a mandamus requiring Capitec Holdings to grant its consent to the sale
within two working days.
The SCA found that the text of clause 8.3 offered no indication that the consent of Capitec Holdings was required
to permit Coral to sell the sale shares to the Fund. It held that the high court was in error in finding that the
subscription agreement required the consent of Capitec Holdings in order for Coral to proceed with the sale to the
Fund. It held that the high court proceeded from its assessment of the conduct of Capitec Holdings to its conclusion
as to the contents of the subscription agreement. The analysis should have commenced with an interpretation of
what the subscription agreement provided. The SCA was of the view that had the high court done so, the meaning
of clause 8.3 would have become plain.
The SCA considered the recent decision of the Constitutional Court in University of Johannesburg as to the
relationship between the admission of extrinsic evidence to determine the meaning of a contract and the parol
evidence rule. The implication of the decision was to render the parol evidence rule a residual rule.
It was found that the manner in which the parties implemented the subscription agreement was relevant evidence
as to what clause 8.3 meant. Extrinsic evidence was found to be admissible to understand the meaning of the
words used in a written contract. The SCA reiterated the Constitutional Court affirmation about the fact that an
expansive approach should be taken to the admissibility of extrinsic evidence of context and purpose, whether or
not the words used in the contract were ambiguous, so as to determine what the parties to the contract intended.
Further, the SCA was of the view that that Capitec Holdings wished to enforce its rights in terms of the
subscription agreement could not be held to be a breach of good faith. Nor could good faith be marshalled to
require Capitec Holdings to give consent, when none was required of it. The SCA held that the Beadica judgment
provided an authoritative interpretation of cases that explain the role that good faith plays in the law of contract.
It was therefore found that the high court’s reasoning based upon good faith, and the respondents’ submissions in
support of that reasoning, could not survive the exposition in Beadica. The reasoning for this was that Beadica
affirmed that while good faith underlined the law of contract and informed its substantive rules, good faith and
fairness were not substantive, free-standing principles to which direct recourse may be had so as to interfere with
contractual bargains or decline to enforce contracts.
The SCA held that ultimately, what Coral and Ash Brook were in reality seeking was a waiver by Capitec Holdings
of its right to require Coral to repurchase the equivalent number of shares it wished to sell. Further, Capitec
Holdings had no obligation to do so, and invocations of good faith could not alter that position. In the result the
appeal was upheld with costs, including the costs of two counsel, paragraphs 4 – 8 of the order of the high court
were set aside and replaced with the following: ‘the application under case number 30899/2019 is dismissed; the
applicants and the first and second Intervening Parties in case number 30899/2019 shall pay the costs of the first
and second respondents, such costs to include the costs of two counsel, where employed’.

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