THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 1194/2019

In the matter between:
FERROSTAAL GmbH

FIRST APPELLANT
ATLANTIS MARINE PROJECTS (PTY) LTD

SECOND APPELLANT

and

TRANSNET SOC LTD

t/a TRANSNET NATIONAL PORTS AUTHORITY
FIRST RESPONDENT
FERROMARINE AFRICA (PTY) LTD

SECOND RESPONDENT
(IN BUSINESS RESCUE)

Neutral citation:
Ferrostaal GmbH and Another v Transnet Soc Ltd t/a Transnet
National Ports Authority and Another (Case no 1194/2019)
[2021] ZASCA 62 (25 May 2021)

Coram:
DAMBUZA, MOLEMELA, MBATHA JJA and GORVEN and
GOOSEN AJJA

Heard:
17 March 2021

Delivered:
This judgment was handed down electronically by circulation to the
parties’ legal 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 25 May 2021.

Summary: Companies Act 71 of 2008 – business rescue proceedings - whether it was
just and reasonable to set aside a creditor’s vote against the adoption of a proposed
business rescue plan on the ground that its result was inappropriate. Held: there is no
justification for interfering with the discretion exercised by the high court – appeal
dismissed with costs.

__________________________________________________________________

ORDER
__________________________________________________________________

On appeal from: Western Cape Division of the High Court, Cape Town (Bozalek J
sitting as court of first instance):
The appeal is dismissed with costs, which costs shall include the costs occasioned by
the employment of two counsel.
__________________________________________________________________

JUDGMENT
__________________________________________________________________
Molemela JA (Dambuza and Mbatha JJA and Gorven and Goosen AJJA
concurring)

Introduction
[1] This appeal concerns the question whether a court’s refusal to set aside a
creditor’s vote against the adoption of a proposed business rescue plan (on the basis
that it did not make provision for that creditor’s interests) was correct. The detailed
facts which gave rise to the litigation are not in dispute and are set forth in the judgment
of Bozalek J sitting in the Western Cape Division of the High Court, Cape Town (the
high court).1 The salient background facts to this appeal are set out in the succeeding
paragraphs.

Background facts
[2] On 31 December 2006, the first respondent, Transnet Soc Limited, trading as
Transnet National Ports Authority (Transnet) concluded a written lease agreement2
(head lease) with Ferromarine Africa Proprietary Limited (FMA) over its fixed property
located at the port of Saldanha. Although the leased property provided access to the

1 Ferrostaal Gmb and Another v Transnet SOC Limited t/a Transnet National Ports Authority and
Another (13342/2019) [2019] ZAWCH 112; [2019] 4 All SA 409 (WCC); 2019 (6) SA 490 (WCC) (29
August 2019).
2 The commencement date was recorded as 1 November 2006.

quay apron and quay operational area of that port, the said apron and operational area
did not form part of the leased premises.3 The head lease was for a period of 15 years,
terminating on 30 September 2022, with FMA being granted an ‘option’ to renew the
lease but on terms still to be negotiated and agreed upon prior to that date, failing
which the option clause would have no effect.4 FMA’s shareholders were Ferrostaal
GmbH, the first appellant, and Atlantis Marine Projects Proprietary Limited, the second
appellant. FMA had two directors and no employees.

[3] On 2 December 2016, FMA was placed under business rescue. On 7
December 2016, Mr Gore, the duly appointed business rescue practitioner
(practitioner), suspended FMA’s obligation to pay rental to Transnet. The practitioner
published the first business rescue plan (BRP) on 28 February 2017. Transnet, which
happened to be FMA’s only independent creditor, did not support the proposed BRP.
It appears that Transnet had subsequently initiated arbitration proceedings
challenging the lawfulness of the practitioner’s decision to suspend FMA’s obligation
to pay rental.  The arbitrator found that the practitioner was entitled to suspend the
payment of rental within the contemplation of s 136 (2)(a) of the Companies Act 71 of
2008 (the Act).5 The other aspects canvassed in the arbitration proceedings require
no mention in this appeal, as nothing turns on them.

[4] On 23 November 2017, the practitioner published a second BRP. It too, did not
find favour with Transnet. During August 2018, Transnet launched an application

3 See clause 2.2.1 of the head lease.
4 Clause 3.2 of the head lease stipulates as follows:
‘[FMA] has the option to continue to lease the Premises on terms to be agreed in writing between the
parties. The terms and duration of the lease of the Premises, which shall apply after the expiry of this
Lease, shall be re-negotiated and agreed upon by the Parties prior to the termination of this Lease,
failing which, the option, notwithstanding the exercise thereof, shall be of no force or effect. The
Lessee’s option must be exercised by notice, in writing to [Transnet], by no later than 12 (twelve) Months
prior to the expiry of this Lease.’
5 Section 136(2) provides:
‘Subject to subsection (2A), and despite any provision of an agreement to the contrary, during business
rescue proceedings, the practitioner may –
(a) entirely, partially or conditionally suspend, for the duration of the business rescue proceedings,
any obligation of the company that –
(i) arises under an agreement to which the company was a party at the commencement of the
business rescue proceedings, and
(ii) would otherwise become due during those proceedings; or
(b) apply urgently to a court to entirely, partially or conditionally cancel, on any terms that are just
and reasonable in the circumstances, any obligation of the company contemplated in paragraph
(a).’

before the high court, seeking an order setting aside the resolution passed by FMA, in
terms of which the business rescue proceedings were commenced. The practitioner
opposed the application on behalf of FMA and simultaneously brought a counter-
application seeking to review and set aside Transnet’s vote against the adoption of the
published BRP. It is unnecessary, for present purposes, to traverse the bases upon
which the application and counter-application were initiated and resisted by the
respective parties. It suffices merely to mention that while those proceedings were
pending, FMA, in principle, agreed to a sub-lease with ArcelorMittal, in terms of which
it was envisaged that ArcelorMittal would install a spiral welding mill at the premises,
which would be used for the production of steel piping required in the marine
construction industry.

[5] On 29 July 2019, the practitioner published a final revised BRP. The main
elements of that revised BRP entailed (i) Transnet approving the terms of the proposed
sub-lease between FMA and ArcelorMittal for a period of three years, (ii) agreeing to
receive its full rental under the head lease for the first six months of the proposed sub-
lease and, (iii) the repayment of the arrear rentals only if and when an extension of the
lease for a further period of 15 years was negotiated between FMA and Transnet upon
the expiry of the head lease.  On 31 July 2019, Transnet voted against the adoption
of the revised BRP at a meeting of creditors and holders of voting rights. For the sake
of completeness, it is necessary to set out the salient provisions of the revised BRP.
They were couched as follows:
‘13.1
The amounts payable by ArcelorMittal in terms of the ArcelorMittal sub-lease (being
the rental due to [Transnet] under the Head Lease for the portion of the Premises occupied by
it), plus the facility fee which would otherwise be paid to [FMA] in consideration for its
facilitation services and investment in the Premises, plus the rental due by OSRL in terms of
its sub-lease, plus a cash contribution from [FMA’s] own resources, should be sufficient to
cover all rental due to [Transnet] for the whole of the Premises for the period from 1 September
2019 to 29 February 2020.
13.2  [FMA] is confident that thereafter, the rental due under the Arcelor Mittal Sub-Lease
and the existing OSRL Lease can be supplemented by further sub-leases to potential sub-
tenants, and that this will be sufficient to cover the whole of the rental due to [Transnet] for the
remainder of the lease.  There is not, however, sufficient time remaining in the initial period of
the Lease for [FMA] to recover the Arrear Rentals incurred during the Business Rescue Period.
13.3
Accordingly, the Practitioner proposes that;

13.3.1 the Lease continue on its existing terms (including the obligation to pay a fixed
rental) with effect from 1 September 2019;
13.3.2 [Transnet] approve the ArcelorMittal Sub-lease;
13.3.3 at the appropriate time, [Transnet] negotiates in good faith with [FMA] for the
extension of the Lease for the further period of 15 years contemplated in the
lease;
13.3.4 the repayment of the Arrear Rentals be deferred until the commencement of
the extended period of the Lease, and that repayment be rescheduled on terms
to be agreed between [Transnet] and [FMA] having regard to the extended
period of the Lease and the levels of new business generated by [FMA] with
the co-operation of [Transnet] or, failing agreement between them be amortised
over the extended lease period;
13.3.5 the claims of the creditors other than [Transnet] will be written off;
…
13.5
For purposes of illustration only, and in no way intending to pre-empt any of the
negotiations between the Practitioner and [Transnet], Annexure D contains a
forecast balance sheet and income statement of [FMA] for the period to the end
of the Lease, prepared on the assumption that the rental due to [Transnet] will
be the amount received from sub-tenants and that the company will contribute
its facility fee received from ArcelorMittal to make up any shortfall in the
[Transnet] rental.
. . .
14.
Benefits of the Business rescue as opposed to liquidation
14.1
If the Company were now to be placed in liquidation, [Transnet] is likely to receive
approximately 17.7 cents in the Rand (after liquidation costs and the Practitioner’s
remuneration and expenses and other claims arising out of the costs of Business
Rescue).  All leases and sub-leases would be terminated and the Premises would be
sterilised during the liquidation process, for a period which is likely to be at least six
months.
14.2
If the Plan is adopted, the Creditors will benefit as follows:

14.2.1 [FMA] will have a viable business for the remainder of the Lease period and
into any extension of the Lease period for the benefit of all its stakeholders:  [Transnet]
as the landlord;  revenue and employment for contractors working in the Port of
Saldanha;  enhancement of the business case for the Saldanha Bay Special Economic
Zone;  opportunities in the broader oil and gas services, energy and ship-building
industries in the Saldanha area;  and enhancement of the objectives set out in

Operation Phakisa in relation to the creation of a marine economy and South Africa’s
attractiveness as an oil and gas hub;  and
14.2.2 although the repayment of Arrear Rentals due to [Transnet] will be deferred,
[Transnet] will receive rental in terms of the Lease with effect from 1 September 2019
and by way of rental for the quay and the quay operational area.
. . .
17.3
The shareholders of [FMA] have concluded an agreement with Macrovest
Capital Proprietary Limited in terms of which they will sell 100% of the shares in [FMA]
to Macrovest, provided that this Business Rescue Plan is approved by the Creditors.
Macrovest is a 100% black-owned company associated with Barend Petersen.’ (Own
emphasis).

[6] Transnet’s rejection of the revised BRP was based on its conclusion that it was
commercially unviable and failed to adequately protect Transnet’s interests as the
major creditor of FMA. Fundamental to Transnet’s rejection of the BRP was its concern
for its lack of provision for payment of arrear rental, which had accumulated to an
amount of approximately R40 million as a result of the practitioner’s decision to
suspend FMA’s obligation to pay rental. Since Transnet held the majority of the
creditors’ voting rights, the consequence of its vote was that the BRP was rejected.6

[7] Where a proposed BRP is rejected on the basis of a vote, s 153(1)(a) of the Act
empowers a practitioner who considers the rejection of the proposed BRP as being
inappropriate, to apply to court to have that vote set aside. In this matter, although the
practitioner took the view that Transnet’s vote against the adoption of the revised BRP
was inappropriate within the contemplation of s 153(1)(a) of the Act, he did not
approach the court to set that vote aside because the first and second appellants had,
in their capacity as FMA’s shareholders, decided to launch the relevant application
within the contemplation of s 153(1)(b)(i)(bb). Averring that Transnet’s rejection of the
BRP was inappropriate, the appellants, within the contemplation of s 153(1)(b)(i)(bb)
of the Act, approached the high court on an urgent basis, seeking an order setting
aside Transnet’s vote against the adoption of the revised BRP. The parties agreed
that it would be more practical for the urgent application to take precedence over the

6 Business rescue plans are adopted if supported by the holders of more than 75% of the creditors’
voting interests in attendance at a meeting convened in terms of s 151 of the Act.

partially heard application that had been postponed. Consequently, the urgent
application was duly argued. By the time that application was finalised, business
rescue proceedings had been in place for approximately three years.

[8] The question before the high court was whether it was reasonable and just to
set aside Transnet’s vote on the ground that it was inappropriate. The high court
concluded that the revised BRP was largely based on future contingent events, such
as the extension of the term of the head lease. Having noted that the revised BRP
required Transnet to approve the sublease between FMA and ArcelorMittal, the high
court bemoaned the fact that setting aside Transnet’s negative vote would ineluctably
have the unusual effect of requiring Transnet to exercise its contractual choice in a
particular manner. The high court did not consider the vote taken by Transnet to be
inappropriate and accordingly held that it was not reasonable and just to set it aside.
Consequently, the high court dismissed that application. Aggrieved by that decision
the appellants sought leave to appeal against the whole judgment of the high court.
This appeal is with its leave.

The parties’ submissions
[9] The crux of the appellants’ argument, both in the high court and in this Court,
was that the rejection of the revised BRP was not in the best interests of Transnet, as
FMA’s liquidation would yield a paltry dividend amounting to 17.7 cents in a rand. The
appellants considered that return to be far less than the amount by which Transnet
would otherwise benefit from the implementation of the revised BRP. The appellants
also contended that unless the operations of FMA were saved by business rescue as
proposed in the revised BRP, no sub-lease would be concluded with ArcelorMittal, as
ArcelorMittal had indicated that it was not prepared to deal directly with Transnet. This
would, so it was submitted, result not only in the loss of R66 million in rental to Transnet
for the remaining period of the head lease, but also in the steel mill project being lost
to the Port of Saldanha and the regional economy as a whole.

[10] The appellants considered the extension of the head lease to be a ‘done deal’
by virtue of the fact that Transnet had given FMA the option to renew it. Transnet’s
rebuttal on that aspect was that such an approach was inconsistent with s 56(5) of the

National Ports Act 12 of 20057 (National Ports Act). Transnet contended that the
injunction in that subsection precludes the renewal of the head lease by private treaty,
as that provision clearly stipulates that any contract outsourcing any service that ought
to be performed by a port authority must be preceded by a fair, equitable, transparent,
competitive and cost-effective procedure. Transnet’s principal argument was that the
revised BRP failed to make adequate provision for the protection of its interests and
was hinged on numerous contingencies and uncertainties.

Issue for determination
[11] The central issue for determination in this appeal is whether the high court was
correct in refusing to set aside Transnet’s vote against the adoption of the revised BRP
on the basis that its vote was not inappropriate, considering all the circumstances.

The applicable law
[12] The concept of business rescue proceedings was introduced by the Act in order
to facilitate the efficient rescue and recovery of financially distressed companies in a
manner that balances the rights and interests of relevant stakeholders.8 The Act
envisages the rehabilitation of a company that is financially distressed by providing
for, first, the temporary supervision of that company and the management of its affairs,
business and property; second, a temporary moratorium on the rights of claimants
against that company or in respect of property in its possession; and, third, the
development and if approved, the implementation of a plan to rescue the company in

7 Section 56(1) of the National Ports Act 12 of 2005 provides:
‘The Authority may enter into an agreement with any person in terms of which that person, for the period
and in accordance with the terms and conditions of the agreement is authorised to –
(a) design, construct, rehabilitate, develop, finance, maintain or operate a port terminal or port facility,
or provide services relating thereto;
(b) provide any other service within a port designated by the Authority for this purpose;
(c) perform any function necessary or ancillary to the matters referred to in paragraphs (a) and (b); or
(d) perform any combination of the functions referred to in paragraphs (a), (b) and (c).
(2) …
(3) …
(4) Notwithstanding any other provision of this Act, the Authority may enter into 30 agreements in terms
of which it contracts out any service which the Authority is required to provide in terms of this Act.
(5) An agreement contemplated in subsection (1) or (4) may only be entered into by the Authority in
accordance with a procedure that is fair, equitable, transparent, competitive and cost-effective.’
8 Section 5(1) of the Act directs that its interpretation and application must give effect to the purposes
stated in s 7 of the Act. Section 7(k) states that one of these purposes is to 'provide for the efficient
rescue and recovery of financially distressed companies, in a manner that balances the rights and
interests of all relevant stakeholders. See s 7(k) of the Companies Act 71 of 2008. Also see FirstRand
Bank v KJ Foods 2017 (5) SCA 40 para 80, 24 and 33.

question.9 Section 153(1) of the Act allows a business rescue practitioner to apply to
court to set aside the vote taken by the holders of voting interests against the adoption
of the plan on the grounds that it is inappropriate. Section 153(1)(a) provides:
‘If a business rescue plan has been rejected as contemplated in section 152(3)(a) or (c)(ii)(bb)
the practitioner may  -  (i)  seek a vote of approval from the holders of voting interests to
prepare and publish a revised plan;  or  (ii)  advise the meeting that the company will apply to
a court to set aside the result of the vote by the holders of voting interests or shareholders, as
the case may be, on the grounds that it was inappropriate.’

[13] Section 153(7) provides as follows:
‘On an application contemplated in subsection (1) (a) (ii) or (b) (i) (bb), a court may order
that the vote on a business rescue plan be set aside if the court is satisfied that it is
reasonable and just to do so, having regard to –
(a)
the interests represented by the person or persons who voted against the
proposed business rescue plan;
(b)
the provision, if any, made in the proposed business rescue plan with respect
to the interests of that person or those persons; and
(c)
a fair and reasonable estimate of the return to that person, or those persons, if
the company were to be liquidated.’

[14] Henochsberg submits that the provisions of s 153(7)(a) to (c) and all relevant
circumstances as well as the purpose of business rescue provide insight as to what
the court should take into account when determining whether it would be reasonable
and just to set aside a rejection vote.10

Discussion
[15] As stated before, the business rescue proceedings were not instituted by the
practitioner, but by FMA’s shareholders. Notably, the practitioner disclosed that he had
not carried out an audit of FMA’s books and records and that he had not verified all of
the information furnished to him by FMA. For their part, the appellants, being the

9 See s 128(1)(b) of the Companies Act 71 of 2008. In FirstRand Bank v KJ Foods this court described
business rescue as the ‘development and implementation of a plan to rescue an entity by restructuring
its affairs, business, property, debt and other liabilities in a manner that maximises the likelihood of the
entity continuing in existence on a solvent basis. If it is not possible for the entity to so continue in
existence the plan must be developed and implemented in a manner that results in a better return for
the entity’s creditors or shareholders than would result from its immediate liquidation.’
10 Piet Delport et al Henochsberg on the Companies Act 71 of 2008 at 538.

applicants in the matter, merely averred that they had read the practitioner’s affidavit
and aligned themselves with the contents thereof. The result was that some material
information was not disclosed in the appellants’ papers. I will revert later to this aspect.

[16] The approach laid down in the majority judgment in FirstRand Bank Ltd v KJ
Foods CC11 (FirstRand judgment) is instructive. In that matter, the company in
business rescue (KJ Foods) employed over 200 permanent employees. Due to its
financial woes, KJ Foods commenced business rescue proceedings, culminating in
the appointed practitioner proposing a BRP. FirstRand voted against the proposed
BRP. The practitioner lodged an application with the high court seeking to set aside
FirstRand’s negative vote on the grounds that it was inappropriate. The high court set
aside FirstRand’s vote rejecting the adoption of the BRP. FirstRand then approached
this Court on appeal.

[17] The main issue for determination in that appeal was whether a court dealing
with an application for the setting aside of a rejection vote ought to first establish
whether the vote was inappropriate before invoking its discretion to decide whether it
was reasonable and just to set it aside, as envisaged in s 153(7). In that seminal
judgment, this Court observed that a court is enjoined by s 153(7) to determine only
whether it is reasonable and just to set aside the particular vote, taking into account
the factors set out in s153(7)(a) to (c) and all circumstances relevant to the case
including the purpose of business rescue. It echoed the sentiment that while the
construction of chapter 6 of the Act, dealing with business rescue, reflected a
legislative preference for the restoration of viable companies rather than their
destruction, the rider was that only viable companies ought to be restored.12

[18] The majority judgment stated that the meaning of the word ‘inappropriate’ could
be understood as ‘not suitable or proper in the circumstances’.13 Significantly, it held
that the interpretation of the term ‘inappropriate’ should take place within the wider
context of the objects of business rescue, which includes providing the efficient rescue

11 FirstRand Bank Ltd v KJ Foods CC (In business rescue) [2017] ZASCA 50; [2017] 3 All SA 1 (SCA);
2017 (5) SA 40 (SCA) para 80.
12 FirstRand Bank Ltd v KJ Foods CC note 11 above para 77; DH Brothers Industries (Pty) Ltd v Gribnitz
NO and Others [2013] ZAKZPHC 56; 2014 (1) SA 103 (KZP); [2014] 1 All SA 173 (KZP) para 10.
13 Ibid para 84.

and recovery of financially distressed companies in a manner that balances the rights
and interests of all stakeholders.14 It pointed out that the determination of whether a
vote is inappropriate entailed a single enquiry and a value judgement requiring the
consideration of all the facts and circumstances. Applying that value judgment, this
Court paid consideration to the fact that the employees of KJ Foods would continue
working for the rescued company if the proposed BRP was adopted, but would lose
their jobs if the company was liquidated. It also considered that in terms of the
proposed BRP, FirstRand would have its claim settled in full by KJ Foods in a series
of payments over a period of time and other creditors would also benefit. It further took
into account that the concurrent creditors would receive 100 cents in the rand if the
proposed BRP was adopted, whereas they would only receive 51 cents in the rand if
KJ Foods were to be liquidated. Having considered all the facts and circumstances of
that case, it held that FirstRand’s rejection of the final BRP was premised on self-
interest and was thus inappropriate. The discussion that follows will demonstrate that
the facts of the present case are distinguishable from those of the FirstRand judgment.

[19] Unlike in the FirstRand judgment, in this matter, the company in distress, FMA,
has no employees whose interests need to be taken into account; as such there was
no general benefit to existing employees. Furthermore, it appeared that since the
inception of the lease, the primary use for which FMA had utilised the premises was
to rent it out to various tenants engaged in the business of manufacturing and repairing
vessels in the oil and gas industry, which yielded revenue for it in the form of sub-lease
rental.  Based on the revised BRP, it would seem that FMA’s intended purpose was to
use the premises for purposes of sub-letting it to other parties in return for rental and
a ‘facility fee’. Unlike in the FirstRand judgment, FMA’s only business and principal
asset was the head lease it had over the leased property (premises).15

[20] I turn now to Transnet’s contention that the revised BRP is skewed in favour of
FMA and thus failed to balance the interests of all the stakeholders. The contents of
the revised BRP speak for themselves. It is abundantly clear from the provisions of
clause 13.3.4 of the revised BRP that no provision has been made for the payment of

14 Ibid para 75.
15 See clause 6.1 of the revised business rescue plan.

arrear rental to Transnet during the subsistence of the head lease, whether by FMA
or a third party.16 The repayment of arrear rental is simply deferred until the
commencement of the extended period of the lease. Furthermore, no explanation is
proffered for FMA not starting to pay the arrear rentals during the remaining period of
the lease.  This omission could not have been an oversight, considering that the terms
of the sub-lease between FMA and ArcelorMittal made provision for ArcelorMittal to
provide an undertaking to FMA, guaranteeing performance of the former’s rental
obligations to the latter.

[21] It is to be observed from the contents of the revised BRP that by the time FMA’s
entitlement to exercise its option in terms of the lease agreement is realised, the arrear
rental in the amount of approximately R40 million would still be unpaid, as no provision
has been made for the settlement of that amount during the subsistence of the head
lease. Instead, the revised BRP expressly states that the payment of arrear rental
would be deferred until the commencement of the extended period of the lease. In
other words, the arrear rental would not be paid unless and until the extension of the
lease had been agreed upon between Transnet and FMA.

[22] The difficulty is that even if the head lease were to be extended, repayment of
the arrear rentals would, in terms of clause 13.3.4 of the revised BRP, be scheduled
on terms still to be agreed between Transnet and FMA. The terms that are still to be
agreed upon include new business generated by FMA. The BRP expressly states that
in the event that Transnet and FMA were unable to agree on the rescheduling of the
payments, the arrears would have to be amortised over the 15-year extended period
of the lease. The high court’s observation that this would place Transnet in a weakened
bargaining position in relation to the negotiation of the terms for the extension of the
lease, cannot be faulted. It is indeed difficult to believe that any prudent creditor would
agree to such a one-sided arrangement. As that arrangement encroached on
Transnet’s future exercise of its contractual rights, its reluctance to endorse a BRP
couched in those terms can hardly be considered unreasonable.

16 That this is so, is evident from the provisions of the revised BRP, especially clause 13.3.4 thereof.

[23] As stated before, the appellants had taken the view that the renewal of the lease
was a fait accompli because of the inclusion of the ‘option clause’. In argument before
us, counsel for the appellants did not dispute that notwithstanding the inclusion of that
clause, it was clear from the provisions of the head lease that Transnet and FMA would
first have to enter into negotiations before the lease could be extended.17 This Court
in Roazar CC v The Falls Supermarket CC18 (Roazar CC) reaffirmed that as a general
rule, an agreement to negotiate and conclude another agreement is not enforceable
because of the absolute discretion vested in the parties to either agree or disagree.
That being the case, counsel rightly conceded that since the head lease made no
provision for a dead-lock breaking mechanism, it merely amounted to an agreement
to negotiate in the future.

[24] In my view, Transnet’s concern about the revised BRP’s failure to provide a firm
arrangement for the settlement of the arrear rental is not unfounded.  It must be borne
in mind that FMA had, approximately a month before the commencement of the
business rescue proceedings, requested a reduction of the rental on the basis that its
business was no longer viable. Since the advent of the business rescue proceedings,
FMA had not paid rental, save for paying over small amounts it had collected from its
subtenants. As a result, the arrear rental had ballooned to approximately R40 million.
It was therefore important for the revised BRP to demonstrate that FMA would be able
to settle the arrears.

[25] Transnet also expressed misgivings as to whether future rentals would be paid.
That concern, too, is not unwarranted. It is clear from the provisions of clause 13.2 of
the revised BRP that the approval of the ArcelorMittal deal would not generate
sufficient revenue to cover FMA’s monthly rental obligations in the future, given that it
was expected that revenue to be generated by sub-leases to ‘potential sub-tenants’
would augment the amount available for rental. It is self-evident that in the event that
further sub-leases were not concluded in the future, there would not be sufficient funds

17 This is acknowledged by the practitioner in clause 13.3.3 of the revised BRP.
18 Roazar CC v The Falls Supermarket CC [2017] ZASCA 166; [2018] 1 All SA 438 (SCA); 2018 (3) SA
76 (SCA) para 13; Premier, Free State v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA) para
35.

to cover the full rental payable to Transnet. It is on that basis that Transnet contended
that the implementation of the revised BRP was based on uncertain future events.

[26] According to clause 13.1 of the revised BRP, FMA would supplement the rental
revenue received from its subleases with a ‘cash contribution from own resources’ in
order to cover the rental due to Transnet for the six months period from 1 September
2019 to 29 February 2020.19 However, the revised BRP does not mention where the
cash contribution would be obtained. Although this information falls within the
knowledge of the appellants as the shareholders of FMA, they, too, did not disclose
this in their affidavit. Since FMA has not yet secured prospective additional sub-
tenants, Transnet’s concern about its future viability is therefore not unreasonable.

[27] The appellants disclosed that they had concluded an agreement with Macrovest
Capital Proprietary Limited (Macrovest) in terms of which they would sell 100% of the
shares in FMA to Macrovest provided that the BRP was approved by FMA’s creditors.
However, the purchase price for that shareholding was not disclosed. In the absence
of information about the purchase price for the shares, it is indeed difficult to determine
where the ‘cash contribution’ alluded to in clause 13.1 would be obtained from. This is
especially so because when it comes to the rental falling due after 29 February 2020,
clause 13.2 makes no reference to any cash contribution that would supplement
revenue received from the sublease and the facility fee. These are some of the
legitimate considerations that weighed heavily with the high court. The high court’s
conclusion that the non-disclosure of the purchase price made it ‘unable to assess
what compensation the applicants will receive should the revised plan be adopted and
which plan, by any reckoning, will leave [Transnet] in an uncertain position as regards
the arrear rentals and the long-term future use of the premises for at least three years’,
is therefore justifiable.

[28] The appellants were at pains to point out that they had written off their claims
against FMA in respect of the loan accounts. However, it bears noting that, on their
own version, they had concluded an agreement with Macrovest for the sale of their
shareholding in FMA. Although the purchase price of the shares has not been

19 See clause 13.1 quoted in para 5 of the judgment.

revealed, it stands to reason that they will be compensated for their shares. The
abandonment of their claims must be seen against that light.

[29] Transnet contended that the implementation of the revised BRP would not
achieve the legislated objective of facilitating the efficient rescue and recovery of
financially distressed companies in a manner that balances the rights and interests of
all stakeholders.20 Nothing in the appellants’ papers suggests that this concern about
the implementation of the revised BRP and the future commercial viability of FMA are
unsustainable or far-fetched. The trite principle laid down in Plascon-Evans Paints
Limited v van Riebeeck Paints (Pty) Ltd21 is therefore in favour of Transnet.22

[30] This brings me to the argument pertaining to the applicability of the provisions
of s 56(5) of the National Ports Act. The provisions of that subsection are peremptory
and enjoin port authorities that have decided to outsource the services they are
statutorily required to perform, to follow procedures that are fair, equitable,
transparent, competitive and cost-effective.23 It bears mentioning that s 56(5) of the
National Ports Act largely echoes the provisions of s 217 of the Constitution, whose
purpose is ‘to prevent patronage and corruption, on the one hand, and to promote
fairness and impartiality in the award of the public procurement contracts, on the
other’.24 In Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief

20 See s 7(k) of the Act.
21 Plascon-Evans Paints Limited v van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; [1984] 2 All SA 366
(A); 1984 (3) SA 623 at 634E-635C.
22 This principle laid down that an applicant who seeks final relief on motion must, in the event of a
dispute of fact, accept the version set up by his opponent unless the latter’s allegations are, in the
opinion of the court, not such as to raise a real, genuine or bona fide dispute of fact, or are so far-
fetched or untenable that the court is justified in rejecting them merely on the papers. See Wightman
t/a J W Construction v Headfour (Pty) Ltd and Another [2008] ZASCA 6; [2008] 2 All SA 512 (SCA);
2008 (3) SA 371 (SCA).
23 Section 217 of the Constitution provides:
‘Procurement -
(1) When an organ of state in the national, provincial or local sphere of government, or any other
institution identified in national legislation, contracts for goods or services, it must do so in accordance
with a system which is fair, equitable, transparent, competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from
implementing a procurement policy providing for-
(a) categories of preference in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair
discrimination
(3) National legislation must prescribe a framework within which the policy referred to in subsection (3)
must be implemented.’
24 Valor IT v Premier, North West Province and Others [2020] ZASCA 62; [2020] 3 All SA 397 (SCA);
2021 (1) SA 42 (SCA) para 40.

Executive Officer, South African Social Security Agency and Others,25 the
Constitutional Court cautioned that the compliance with components of the
constitutional and legislative procurement framework  were not mere internal
prescripts that could be disregarded at whim.

[31] This Court has also held that a public procurement contract concluded in breach
of legal provisions designed to ensure a transparent, cost effective and competitive
tendering process in the public interest is invalid and will not be enforced.26 A
contractual term that obliges an organ of state to extend a lease agreement despite
the tenant not settling a substantial arrear rental can hardly be described as cost-
effective. I agree with Transnet’s argument that consenting to extend a lease
agreement that was manifestly not cost-effective would severely prejudice Transnet,
as Saldanha Bay was one of the busiest ports in South Africa. Moreover, a factor that
bears consideration is that once a vote to reject a proposed BRP is set aside by a
court of law, it follows that the BRP in question is adopted by operation of law.27 The
setting aside of Transnet’s rejection vote would therefore give an imprimatur to non-
compliance with peremptory legal requirements pertaining to a public procurement.
The high court rightly refused to follow that course.

[32] I consider next the appellants’ argument pertaining to the return that would be
yielded by FMA’s liquidation. The assertion that Transnet stood to benefit from the
adoption of the revised BRP as opposed to FMA’s liquidation was based on the fact
that FMA’s liquidation would yield only 17.7 cents in a rand for Transnet and that all
leases and subleases on the premises would be terminated, resulting in the premises
not generating income for approximately six months to allow for the procurement
process to be finalised. This should not be considered in isolation.

[33] Transnet correctly asserts that what also needs to be taken into account is that
in addition to immediately yielding a dividend for Transnet, the liquidation process
would also free the premises up, leading to a competitive tender process that could

25 Allpay Consolidated Investment Holdings (Pty) Ltd and Others v Chief Executive Officer, South
African Social Security Agency and Others [2013] ZACC 42; 2014 (1) SA  604 (CC) para 40.
26 Qaukeni Local Municipality and Another v FV General Trading CC [2009] ZASCA 66; 2010 (1) SA
356 (SCA) para 16; Gobela Consulting v Makhado Municipality [2020] ZASCA 180 para 17.
27 FirstRand Bank v KJ Foods note 10 above, para 89.

potentially give Transnet an opportunity to fully exploit the property’s commercial
value. That the property in question indeed has significant commercial value is
attested by correspondence attached to Transnet’s answering affidavit, in terms of
which a third party had expressed interest in renting the premises on a long-term basis
as it considered them to be ideally located for its participation in the oil and gas
industry. The relatively low dividend that can be yielded on liquidation must therefore
not be considered in isolation.

[34] Although the appellants tried to put a high premium on the assertion that
ArcelorMittal did not want to negotiate directly with Transnet and suggested that that
ArcelorMittal would move the steel mill to Mombasa if the proposed sublease between
FMA and ArcelorMittal was not approved, Transnet disputed that unsubstantiated
allegation. It was asserted that Transnet’s officials had held several meetings with
ArcelorMittal and there had been no suggestion that ArcelorMittal was reluctant to
enter into any dealings with it. The high court correctly concluded that the appellants
had not disclosed sufficient information on this aspect to take the matter beyond
conjecture.

[35] I deal next with an issue that arose during the hearing of this appeal. A pertinent
question posed by the bench during the exchange with the appellants’ counsel was in
relation to the envisaged end-date of the business rescue process, given the future
contingent events on which the BRP depended. The basis for that question is that s
128(1)(b)(i) envisages a temporary supervision of the distressed company by the
practitioner. Notably, the import of s 132 (2) of the Act is that the practitioner’s functions
do not come to an end until the practitioner has overseen substantial implementation
of the BRP, at which stage he or she will file a notice indicating the termination of the
BRP. Counsel could not give a satisfactory indication regarding the substantial
implementation of the revised BRP.

[36] As regards the temporary moratorium on the rights of claimants envisaged in s
128(1)(b)(ii) of the Act, the revised BRP was unfortunately not a model of clarity. It
stated that ‘[i]f the [BRP] fails and the Company is not placed in liquidation and instead
the Business Rescue continues, then the moratorium will likewise remain in effect.’
Given the fact that the payment of arrear rental will only be negotiated at the end of

the head lease which would terminate in three years’ time, and that the arrears would,
in the absence of an agreement on the structuring of the repayments, be amortised
over an extended 15-year period, the vague arrangement set out in the revised BRP
cannot be described as “temporary” within the contemplation of s 128(1)(b)(ii) of the
Act. This non-compliance with the provisions of s 128(1)(b)(ii) constitutes an additional
reason why the high court’s refusal to set aside Transnet’s vote rejecting the proposed
BRP is unassailable.

[37] I am satisfied that all the circumstances alluded to in the foregoing paragraphs
militate against finding that Transnet’s vote against the adoption of the revised BRP
was inappropriate and thus constitute sufficient factual bases for dismissing the
appeal. It is therefore not necessary for this Court to examine the rest of the reasoning
that informed the high court’s decision.

[38] It is trite that for the appellants to be successful in this appeal, this Court must
be satisfied that the high court was wrong in the exercise of its value judgment.28 It is
equally trite that a court determining whether a vote against the adoption of a BRP
was inappropriate exercises a discretion.29 The parties expressed divergent views
relating to the standard of interference that this Court as an appellate court is entitled
to apply. The Constitutional Court in Trencon Construction (Pty) Limited v Industrial
Development Corporation of South Africa Limited and Another30 carefully illustrated
the difference between a discretion in the loose sense and one in a true sense. It is
unnecessary for purposes of this judgment to traverse the ground already covered by
that court on that topic. It suffices to mention that the Constitutional Court cautioned
that ‘even where a discretion in the loose sense is conferred on a lower court, an
appellate court’s power to interfere may be curtailed by broader policy
considerations.’31

28 Compare Rawlins v Dr D C Kemp t/a Centralmed [2010] ZASCA 102; [2011] 1 All SA 281 (SCA);
[2011] 1 BLLR 9 (SCA) para 15-18.
29 FirstRand Bank v KJ Foods note 11 above, para 71.
30 Trencon Construction (Pty) Limited v Industrial Development Corporation of South Africa Limited and
Another [2015] ZACC 22; 2015 (5) SA 245 (CC); 2015 (10) BCLR 1199 (CC).
31 Trencon Construction (Pty) Limited v Industrial Development Corporation of South Africa Limited and
Another note 28 above para 87.

[39] It is clear from the well-reasoned and comprehensive judgment of the high court
that in exercising its value judgment to determine whether the revised BRP fell to be
set aside on the basis of being inappropriate, it carefully took the provisions of s
153(7)(a) to (c) of the Act and all the circumstances of this case into account. There
can be no quarrel with a conclusion that the high court’s discretion was properly
exercised, regardless of whether it constitutes a true or loose discretion. It is therefore
not open to this Court to tamper with its decision. It follows that the appeal must be
dismissed. There is no reason for departing from the general rule applicable to costs
orders.

Order
[40] The appeal is dismissed with costs, which costs shall include the costs
occasioned by the employment of two counsel.

________________________

M B MOLEMELA

JUDGE OF APPEAL

Appearances

For appellants:

M J Fitzgerald SC
Instructed by:

Bowman Gilfillan Inc., Cape Town
Matsepes Attorneys, Bloemfontein

For respondent:

A Bham SC (with him N C Ferreira)
Instructed by:

Webber Wentzel, Johannesburg
Webbers 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:
25 May 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
Ferrostaal GmbH and Another v Transnet Soc Ltd t/a Transnet National Ports Authority and
Another (1194/2019) [2021] ZASCA 62 (25 May 2021)

The Supreme Court of Appeal (SCA) today dismissed an appeal brought by Ferrostaal GmbH,
and another appellant, against Transnet SOC Ltd, trading as Transnet National Ports
Authority, (Transnet) and another respondent. The appeal was dismissed with costs, which
included the costs of two counsel. The SCA thereby upheld the decision of the Western Cape
Division of the High Court, Cape Town (the high court).

The central issue for determination by the SCA was whether the high court was correct in
refusing to set aside Transnet’s vote against the adoption of the revised business rescue plan
(BRP) on the basis that its vote was not inappropriate, considering all the circumstances.

On 2 December 2016, an order placing Ferromarine Africa (Pty) Ltd (FMA), the second
respondent, under business rescue was granted. FMA’s shareholders were Ferrostaal GmbH,
the first appellant, and Atlantis Marine Projects (Pty) Ltd, the second appellant. On 7
December 2016, Mr Gore, the duly appointed business rescue practitioner, suspended FMA’s
obligation to pay rental to Transnet. The practitioner published the first BRP on 28 February
2017. Transnet, which happened to be FMA’s only independent creditor, did not support that
proposed BRP. On 29 July 2019, the business rescue practitioner published a final revised
BRP. On 31 July 2019, Transnet voted against the adoption of the revised BRP at a meeting
of creditors and holders of voting rights. Averring that Transnet’s rejection of the BRP was
inappropriate, the appellants, within the contemplation of s 153(1)(b)(i)(bb) of the Companies
Act 71 of 2008 (the Act), approached the high court on an urgent basis, seeking an order
setting aside Transnet’s vote against the adoption of the revised BRP.

The SCA held that it was clear from the well-reasoned and comprehensive judgment of the
high court that in exercising its value judgment to determine whether the revised BRP fell to
be set aside on the basis of being inappropriate, it had carefully taken the provisions of s
153(7)(a) to (c) of the Act, and all the circumstances of this case, into account. The SCA found
that there could be no quarrel with a conclusion that the high court’s discretion was properly
exercised, regardless of whether it constituted a true or loose discretion. It was therefore not
open to the SCA to tamper with its decision.
~~~~ends~~~~