THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable

Case No: 20461/14

In the matter between:

UNICA IRON AND STEEL (PTY) LTD                      FIRST APPELLANT
MOHAMMED ASIF QASIM

SECOND APPELLANT

and

SURESH MIRCHANDANI

RESPONDENT

Neutral citation: Unica Iron and Steel v Mirchandani (20461/2014) [2015]
ZASCA 150 (1 October 2015)

Coram:
Lewis, Shongwe, Leach and Zondi JJA and Baartman AJA

Heard:
03 September 2015

Delivered: 01 October 2015

Summary:  Contract – written document – whether intended by parties to be
binding – conduct of parties post signature showing that they intended to be
bound and that their agreement was not subject to another formal agreement
being concluded.

________________________________________________________________

ORDER
________________________________________________________________

On appeal from: Gauteng Division, Pretoria (Matojane J sitting as court of
first instance): The appeal is dismissed with costs.
________________________________________________________________
JUDGMENT
________________________________________________________________

Leach JA (Lewis, Shongwe and Zondi JJA and Baartman AJA concurring)

[1] The principal issue in this appeal is whether a document signed by the
parties is an enforceable contract as alleged by the respondent or whether, as the
appellants allege, using the words of Corbett JA in Pitout v North Cape
Livestock Co-operative Ltd 1977 (4) SA 842 (A) at 850C-D, it was merely a
proposal made in the process of negotiation while the parties ‘were feeling their
way towards a more precise and comprehensive agreement’. The high court
upheld the respondent’s contention that it was a binding agreement and granted
relief pursuant to that finding. The appeal to this court is with leave of the court
a quo.

[2] The respondent, who has a business background rooted in the steel
industry, came to South Africa from India in 2005. After his arrival in this
country he met both the second appellant, Mr Mohamed Asif Qasim, a
businessman who owned a plastics factory, and Mr Irshad Ul Haq, an
accountant.  In due course the three of them agreed to venture into business
together in a steel manufacturing and smelting operation involving the
production of certain steel products from the recycling of metallic waste.

[3] The first appellant, Unica Iron and Steel (Pty) Ltd (Unica), was the
vehicle they used to conduct this venture. Mr Qasim was appointed its
managing director, Mr Ul Haq its financial director and the respondent its
technical director. Premises for a factory were identified in Babelegi, north of
Pretoria; meetings were held with the Department of Trade and Industry; and
financial backing was procured at a subsidised rate from the Industrial
Development Corporation. The respondent thereafter went back to India to seek
out the requisite machinery and technical staff. This took some time and it was
only some nine months later, on 27 April 2007, that he returned to this country
bringing his family with him.

[4] Before he had left for India, the respondent and Mr Qasim had looked at
various residential properties for Unica to buy to provide a home for the
respondent and his family. Finally they selected the property known as 36
Blesbok Avenue, Centurion (the immovable property). At that stage Unica,
although existing on paper, was not in a position to obtain a home loan, and so
it was decided that Mr Qasim would purchase the property in his name but that
Unica would take over the bond in due course. On that understanding, the
immovable property was purchased in December 2006 and the respondent and
his family took up residence there when he returned from India in April the
following year.

[5] A few weeks after returning to South Africa, the respondent and Unica,
the latter represented by Mr Ul Haq and Mr Qasim, concluded a written
employment agreement. Backdated with effect to 4 December 2006, it
provided:

‘1. That (the respondent) will be working as a technical Director on profit sharing basis. He
will be a key person and under his leadership and guidance, Unica will source, commission
and run the plant successfully.
2. (The respondent) will be entitled for 17% of the profits of Unica defined herein as follows:
3. Profits will be calculated before tax after providing for depreciation and interest on
Shareholders loans.
4. (The respondent) will be drawing a salary of R40000-00 per month which will be deducted
from his profit share at the end of the year. If Unica does not achieve profits it will carry to
the next years until Unica achieves sufficient profits of which 17% is equal or higher than the
total drawings till that date.
5. As (the respondent) is sharing profits in Unica and his association with Unica will be on
long term basis and unrestricted.’

[6] The year following his return to South Africa was a busy time for the
respondent. Not only did he return to India with Mr Ul Haq in order to recruit
technicians but he supervised the erection, construction and commissioning of
Unica’s factory at Babelegi. Production at the factory eventually commenced in
April 2008. As is understandable in a venture of this nature, it took some time
for Unica to show a profit. This it did, according to Mr Ul Haq, towards the
middle of 2009.

[7] Unfortunately, despite the relatively short period of their business
association, the relationship between the respondent on the one hand and his
two co-directors on the other, soured quickly. One of the causes of conflict was
the calculation of the share of the profits the respondent was due to receive
under his contract of employment. For present purposes it is unnecessary to
either detail the respondent’s complaints or to decide whether they were
justified. Suffice it to say that, on 26 November 2009, when the respondent sent
an email to his co-directors commenting on Unica’s management accounts of
October 2009, he stated that the calculation of profit was based on ‘unfounded

assumptions and misinterpretations’ and that the issue remains ‘unresolved and
unaccepted’.

[8] On 15 April 2010, the respondent was summoned to attend a directors’
meeting at which various disputes he had with his co-directors were discussed.
The issues between them were not resolved and, on 12 July 2010, Unica served
the respondent with what purported to be a notice of retrenchment under s 189
of the Labour Relations Act 66 of 1995. This recorded that the reason for his
retrenchment was that ‘the plant has been commissioned and is running
successfully and at present there are a surplus of employees of Unica with the
necessary technical expertise to run the plant successfully’ and that the
respondent therefore could be replaced  by another employee ‘at least cost to
Unica’. It went on to propose a severance package of one week’s pay for every
completed year of service plus a payment of R1 million.

[9] In the light of the terms of clause 5 of the respondent’s employment
contract and the background difficulties then existing between him and his co-
directors, the almost irresistible inference is that this notice was a sham and his
co-directors were merely attempting to end his employment due to their
conflict. Be that as it may, the respondent refused to accept the severance
package offered. He also rejected a further offer that he should resign from
Única and, instead, join in a fresh venture with Mr Ul Haq and Mr Cassim,
producing oxygen.

[10] In any event, the relationship between the respondent and his co-directors
did not improve and matters came to a head at a meeting they held on 28
September 2010. At the outset the mood of the meeting was tense. Mr Ul Haq
made it clear to the respondent that he and Mr Qasim could no longer continue
working with him and that he either had to settle amicably with them or would

face retrenchment. As inevitably happens in situations such as this, after some
initial mud-slinging the parties eventually got down to discuss mutually
agreeable terms on which the respondent could leave.

[11] Terms were finally agreed, and Mr Qasim drafted an agreement in
longhand which he, Mr Ul Haq and the respondent all signed (for convenience I
intend to refer to this document as SM1, that being its annexure number to the
particulars of claim). Each term was discussed in turn and only recorded when
all parties were satisfied with its content.

[12] On coming to a lump sum for the respondent to be paid as part of what is
recorded as being his ‘golden handshake’, agreement was reached on a cash
sum of R 1,42 million. In recording this, Mr Qasim initially inserted the words
“tax to be discussed’ immediately thereafter. The respondent was not prepared
to accept this. He stated that he wanted that sum tax free. As this would oblige
Unica to bear the tax burden of such a payment, Mr Ul Haq promptly
telephoned the company’s auditors to inquire how this could be done, and was
told that it would be possible but that a tax directive would have to be obtained
from the South African Revenue Service (SARS). On learning this, Mr Qasim
deleted the words ‘tax to be discussed’ and replaced them with the word ‘nett’.
The suggestion made by the appellants to the court a quo that ‘nett’ merely
meant that the payment was to be in cash can obviously be rejected in the
circumstances.
[13]   When completed and signed by all three directors the final document read
thus:
‘Agreement
BETWEEN [THE RESPONDENT]
AND
UNICA IRON & STEEL (PTY) LTD

Following was agreed upon:-
1.
[The respondent] will be leaving Unica from 30th Sept 2010 and he will not be
involved in Unica at all. Subject to signing of Agreement and completion of following
2.
Unica will pay him as follows for golden hand shake:

R1,420000,00  -  One million four hundred & 20 Thousand Rand only (Net)

will be paid upon signing of agreement.

Car which he is using will be transferred to his name upon signing of

agreement.

House will be transferred to his name within 3 months of signing the

agreement. Transfer & other costs for 3 months will be paid by Unica.

3.
All other expenses for [the respondent] currently paid by Unica will be transferred for
account or will be cancelled as agreed upon:-

Car insurance.

Telephone. (all cell incl.)

Medical Aid.

Life insurance.

Petrol Card.

DSTV.

Car tracking system.
4.
He will not be engaging himself in any business directly in competition with Unica
Steel or/Unica plastic.
5.
[The respondent] will inform all our associates local/overseas including suppliers
about this development and will introduce Mr Asif.’

[14] According to the respondent, after signing this agreement the mood of the
meeting changed and became light-hearted.  Mr Ul Haq handed him a file
containing various documents relating to the house in which he was living as
well as the registration documents for the Dodge motor vehicle, and told him to
arrange transfer of both. The appellants denied this had occurred but it was
common cause that the registration papers for the vehicle were given to the
respondent at some stage soon thereafter and that the vehicle was then
registered in his name, so nothing really turns on precisely when this took place.

[15] Importantly, as agreed in clause 1 of SM1, by the end of the workday on
30 September 2010 the respondent had cleared his desk, collected his
belongings and left the factory, never to return. Before he left, in compliance
with his obligations under clause 5, he had sent an email, approved by Mr Ul
Haq, to Unica’s Indian suppliers (and copied to Mr Qasim and Mr Ul Haq).
After acknowledging the support and contribution the suppliers had made to
Unica, he stated:
‘I have decided to accept the golden handshake package and move on to another project. In
my absence, Mr Asif Qasim, managing director of Unica Iron, will be handling the technical,
imports and purchase. Mr Asif is touring India for seven days from today to shortlist the
vendors, suppliers and exporters of above ref. items. Those who wish to continue their
supplies in future are requested to meet or invite Mr Asif in India for their personal
introduction and future business.’
As envisaged in this letter, Mr Qasim indeed thereafter proceeded to India and
met with the suppliers to whom the respondent had introduced him.

[16] Thus far, all had proceeded to plan as envisaged by SM1. However,
problems arose on 11 October 2010 when Mr Ul Haq requested the respondent
to accompany him to the offices of SARS to obtain the necessary tax directive
relating to his ‘golden handshake’. According to the respondent, Mr Ul Haq met
with several SARS officials and, when they left the meeting, had told him that
the tax liability on the package was close to R1 million and was much bigger
than he had anticipated. Mr Ul Haq then proposed to the respondent that he
should pay half of this, but he refused to do so. Mr Ul Haq then told him that
Unica was anxious for the agreement to be completely in order and asked if he
had any objection to Unica having its attorneys draw up a formal agreement. He
agreed to this proposal on condition that none of the terms of the written
agreement were changed.

[17] A draft agreement was thereafter prepared by attorneys, but the
respondent was told that it was not in order and that a revised copy would
follow. A revised agreement was presented to him early in November 2010 but
the respondent refused to sign it, stating that it deviated from what had been
agreed upon in SM1. At that, Unica again served him with a notice of
retrenchment under s 189 of the Labour Relations Act 66 of 1995. In the light
of the history of the matter this, too, appears to have been a sham.

[18] In November 2010, after the respondent made contact with Mr Ul Haq,
Unica transferred R100 000 into his account. The respondent alleged this was
part payment of what was due to him under SM1. The balance remained unpaid
and when Unica refused to pay it or transfer the immovable property to him, the
respondent instituted action for specific performance in the court a quo.

[19] The appellants’ defence to the respondent’s claim was threefold. It was
argued, first, that SM1 contained a suspensive condition that had never been
fulfilled; second, that SM1 did not constitute a binding agreement; and third
that as the respondent had failed to perform his reciprocal obligations under
SM1, he could not claim specific performance on their part. And as the
appellants contended that SM1 had never had contractual effect, they argued
that the R100 000 the respondent had paid had not been due and the Dodge
motor vehicle ought not to have been transferred to him. In a counter-claim they
sought repayment of that sum plus interest and return of the motor vehicle.

[20] The first two legs of this defence are to a large measure inter-twined. The
argument at the outset was founded on the term in clause 1 of SM1 that the
agreement was ‘subject to signing of agreement’. Relying upon authorities such
as Parsons Transport (Pty) Ltd v Global Insurance Co Ltd [2005] ZASCA 95;
2006 (1) SA 488 (SCA) para 5, the appellants contended that the phrase

‘subject to’ can denote either a suspensive or a resolutive condition, or a
material term in the contract. All three of these possibilities, so the argument
went, have the result that SM1 required the signing of a further agreement in the
form of a formal document drawn up by attorneys and signed by the parties;
and until that was done, the condition in SM1 remained unfulfilled.
Accordingly, as the respondent had refused to sign the formal agreement
prepared by attorneys, the fact that SM1 had been signed was in itself
insufficient for its terms to become binding.

[21] In considering the validity of this argument, it is unnecessary to deal in
any depth with the principles applicable to the interpretation of contracts.  They
must now be regarded as well settled, particularly in the light of recent
judgments of this court in cases such as KPMG Chartered Accountants (SA) v
Securefin Ltd & another [2009] ZASCA 7; 2009 (4) SA 399 (SCA), Ekurhuleni
Metropolitan Municipality v Germiston Municipal Retirement Fund [2009]
ZASCA 154; 2010 (2) SA 498 (SCA), Bothma-Batho Transport (Edms) Bpk v S
Bothma & Seun (Edms) Bpk [2013] ZASCA 176; 2014 (2) SA 494 (SCA),
North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd [2013]
ZASCA 76; 2013 (5) SA 1 (SCA) and, most recently, Novartis South Africa v
Maphil Trading [2015] ZASCA 111. As Lewis JA stated in North East
Finance:1
‘The court asked to construe a contract must ascertain what the parties intended their contract
to mean. That requires a consideration of the words used by them and the contract as a
whole, and, whether or not there is any possible ambiguity in their meaning, the court must
consider the factual matrix (or context) in which the contract was concluded.’
All that needs to be added is that it can be accepted that the way in which the
parties to a contract carried out their agreement may be considered as part of the
contextual setting to ascertain the meaning of a disputed term – see eg Rane

1 Para 24.

Investments Trust v Commissioner, South African Revenue Service [2003]
ZASCA 60; 2003 (6) SA 332 (SCA) para 27. As is stated in R H Christie’s The
Law of Contract in South Africa 6 ed (2011) at 117, relying upon Breed v Van
den Berg 1932 AD 283 at 292-293, this is because the parties’ subsequent
conduct ‘may be probative of their common intention at the time they made the
contract’.2

[22] Applying these principles to SM1, there is no reason to conclude that the
phrase ‘subject to’ in clause 1 necessarily connotes that a further agreement –
let alone a formal agreement drafted by attorneys to which no mention
whatsoever is made in the document – needed to be signed before it became
binding. It is necessary to remember that SM1 was written by a businessman,
not a lawyer skilled or trained in the drafting of contracts, and that allowance
must be made for that in construing its terms – see Trever Investments (Pty) Ltd
v Friedhelm Investments (Pty) Ltd 1982 (1) SA 7 (A) at 15C-D. This is all the
more so in the present case where, as appears not only from the terms of SM1
but from the evidence given by the respective parties, the language in which the
document was drafted was not their mother tongue. In these circumstances, the
phrase ‘the agreement’ may readily  be understood as meaning no more than
‘this agreement’, particularly in the light of SM1 having been signed by the
parties. Had SM1 been intended to be no more than a memorial of what was
later to be incorporated in a formal agreement, signature by the parties would
have been entirely superfluous. But it was so signed by all three of the relevant
role players, and this is a clear indication that they intended it to be binding.
Indeed Mr Qasim stated in evidence that he had made provision for signature of
the document as he wanted the respondent to be bound so that, in any
subsequent agreement formalised by an attorney, ‘the terms and the amount

2 See further authorities collected in Christie at 226 fn 361 and Telcordia Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112; 2007 (3) SA 266 (SCA) para 91.

should be the same.’ Clearly then SM1 was ‘subject to’ it being signed, and not
some further agreement being signed.

[23] Moreover, and importantly, immediately after SM1 was signed Unica,
through Mr Ul Haq and Mr Qasim, proceeded to implement its terms. I have
already mentioned how the respondent ceased work at the end of September
2010 as agreed; how the Dodge motor vehicle he was using as a company car
was transferred to him; how he sent an email approved by Mr Ul Haq to
suppliers in fulfilment of his obligation under clause 5; and how Unica paid him
R100 000. The appellants’ suggestion that it made this payment in order to
persuade the respondent to sign the agreement their attorney had prepared, rings
hollow and is inconsistent with their counter-claim in which they alleged that it
was paid on the assumption that the suspensive condition they contended for
would be fulfilled.

[24] Not only do those facts in themselves indicate that the appellants
regarded the agreement as binding, but as from 1 November 2010 Unica
commenced paying the bond instalments on the respondent’s residence in order
to comply with its obligation under clause 2 of SM1 to make the property
available to him. Furthermore, pursuant to the provisions of clause 3, the
respondent took over the insurance for the motor vehicle and the monthly
payment of its car-tracking system as well as payment of his monthly telephone
account and satellite television subscription, all of which had been paid by
Unica before SM1 was signed. At his choice, his medical aid and life insurance
that Unica had also been carrying were cancelled.

[25]   All of this points to the appellants regarding SM1 not merely as part of
their negotiations towards a final agreement, but as binding upon them. Any
doubt about this is removed by both Mr Ul Haq and Mr Qasim having

confirmed in their testimony that the terms of SM1 were those that they had
agreed upon and could not have been departed from in any formal agreement
subsequently drawn up on their behalf by an attorney. As already mentioned,
Mr Qasim provided for SM1 to be signed in order to bind the respondent to its
terms. He also stated that none of the clauses of SM1 needed to be changed and
that the ‘only thing was to formalise this thing in a proper wording and proper
document’.

[26] All of this is irreconcilable with SM1 having been conditional upon a
subsequent, formalised agreement being concluded and signed. As the
appellants readily conceded, and as the respondent pertinently testified, they all
regarded the agreement as binding and proceeded to implement its terms. The
inference is irresistible that it was only once the appellants realised that they
had underestimated the respondent’s tax liability that they sought to evade their
contractual obligations. The court a quo therefore correctly concluded that SM1
was not subject to the suspensive condition suggested by the appellants and was
binding between the parties.

[27] That is still not the end of the matter, as the appellants also argued that on
the respondent’s own version there was insufficient consensus in regard to the
terms of the restraint of trade clause contained in clause 4 of SM1. This was
advanced on the strength of the respondent having testified that he was only
prepared to accept a restraint as far as the plastic industry is concerned, that he
knew that a restraint should be subject to a specific geographical area and time
limit and that he would not have agreed to a restraint applying to the whole of
South Africa as, effectively, was provided in clause 4 of SM1. Thus, so the
argument went, there had been no consensus in regard to the restraint terms,
that this was a material provision relating to the ‘termination package’ that

indicated that a more comprehensive contract was contemplated being reached
in due course.

[28] The fact remains that the parties signed SM1 with the intention of being
bound by its terms. Whether the respondent, with the benefit of hindsight, acted
rashly to agreeing to the restraint or whether that clause would withstand
judicial scrutiny had the appellants sought to enforce it against him, is neither
here nor there. The restraint, such as it was, was severable from the balance of
the contract.  It thus cannot be said that SM1 was inchoate. As I have stressed,
the appellants’ own case is that it encompassed all the terms of the agreement
that had been reached and merely had to be put into ‘a proper document’.

[29] It was also argued by the appellants that the respondent was not entitled
to an order of specific performance as he was in breach of his reciprocal
obligations under clause 4 in that he had been a director and shareholder of one
of Unica’s competitors. The argument is without substance. It is unnecessary to
speculate on the enforceability or otherwise of clause 4 or to consider whether
the respondent had acted in breach thereof. It was never Unica’s case as pleaded
that it had been entitled to withhold performance due to the respondent’s failure
to perform. Its case was, quite simply, that SM1 lacked contractual force. That
was the defence to the respondent’s claim that the court a quo was called on to
decide and in respect of which it reached the correct conclusion.

[30] In all the circumstances the court a quo did not err in finding that SM1
had binding force. It correctly upheld the respondent’s claim and dismissed the
counter claim of the appellants. The appeal must fail.
[31] The appeal is dismissed with costs.

_______________________
L E Leach
Judge of Appeal

Appearances:

For the Appellants:

N Davis SC
Instructed by:

Van der Merwe Du Toit Inc, Pretoria

Symington & De Kok, Bloemfontein

For the Respondent:

B C Stoop SC
Instructed by:

Barnard Inc, c/o Pretorius Le Roux

Attorneys, Pretoria

McIntyre & van der Post, Bloemfontein

THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

From:  The Registrar, Supreme Court of Appeal
Date:  1 October 2015
Status:  Immediate

Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal

Neutral citation:
Unica Iron and Steel v Mirchandani (20461/2014) [2015] ZASCA
150 (1October 2015)

The respondent was formerly employed by the first appellant, Unica Iron and
Steel (Pty) Ltd of whom, together with the second appellant and a Mr Ul Haq,
the respondent was a director. When relations between the three directors
became strained, the respondent agreed to leave the employ of Unica. With this
end in view, the three directors signed a document containing the terms under
which he agreed to leave.

Although certain of these terms were implemented, Unica failed to pay the full
cash consideration reflected in the document. When sued by the respondent, it
alleged that the document that had been signed was not a final agreement and
merely a proposal made in the process of negotiation. It contended that the
document had been subject to a final and more precise comprehensive
agreement being signed. This contention was rejected by the Gauteng Division
of the high court which granted an order of specific performance of the signed
document.

On appeal against that judgment, the Supreme Court of Appeal today held that
the conduct of the parties post signature of the document showed that they had
intended to be bound by its terms and that their agreement was not subject to
another formal agreement being concluded. It therefore dismissed the appeal
with costs.

---ends---