Not reportable

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Case no: 759/2011

In the matter between:

COMWEZI SECURITY SERVICES (PTY) LTD
First Appellant
MOHAMMED SHAFFIE MOWZER NO
(in his capacity as the trustee for the Grapsy Trust)  Second Appellant
and
CAPE EMPOWERMENT TRUST LIMITED                      Respondent

Neutral citation: Comwezi Security Services (Pty) Ltd v Cape
Empowerment Trust Ltd (759/11) [2012] ZASCA  126
(21 September 2012)
Coram:
CLOETE, CACHALIA, LEACH, THERON and WALLIS
JJA.
Heard:
31 August 2012
Delivered: 21 September 2012
Summary: Contract – resolutive condition – interpretation – power of
relaxation vested in one party – exercise of power – evidence of conduct
of parties in implementing contract – admissibility.

ORDER

On appeal from: Western Cape High Court (Louw J sitting as court of
first instance)
The appeal is dismissed with costs, such costs to include the costs of two
counsel where two counsel were employed.

JUDGMENT

WALLIS JA (CLOETE, CACHALIA, LEACH and THERON JJA
concurring)

[1] The first appellant, Comwezi, borrowed R4 million from the
respondent (CET). Repayment of this amount was secured by way of a
cession and pledge of 20 shares in Comwezi held by the Grapsy Trust,
which was represented, as it has been in this litigation, by the second
appellant, Mr Mowzer, in his capacity as trustee of the trust. The loan was
not repaid on 30 April 2009 in accordance with the loan agreement. On
8 June 2010, the parties entered into a settlement agreement in terms of
which the loan would be discharged by way of the issue to CET of 25
shares in Comwezi.

[2] The settlement agreement contained a resolutive condition that had
to be fulfilled within three months, relating to the conduct by CET of a
due diligence exercise in respect of Comwezi. Failing fulfilment of the
condition the settlement agreement would lapse and the parties would

revert to their respective positions under the loan agreement. CET was
given the right to waive or ‘relax’ the resolutive condition. It purported to
do so by extending the date for its fulfilment no less than 13 times, on the
grounds that Comwezi was in breach of its obligations to co-operate with
the due diligence investigation and provide documents to enable the
investigation to be undertaken. The issue before us is whether these
extensions were effective or whether the condition, and therefore the
settlement agreement, failed. In the high court, Louw J held that the
extensions were permissible and that the agreement remained in force. He
issued an order compelling Comwezi to co-operate with CET in the due
diligence investigation. The appeal against that order is with his leave.

[3] The relevant provisions of the settlement agreement are those
embodying the right to conduct a due diligence investigation and the
resolutive condition. These are to be found in clauses 7 and 10, the
relevant portions of which read as follows:
'7 DUE DILIGENCE INVESTIGATION
7.1
CET shall be entitled, immediately after the Signature Date to conduct a
comprehensive due diligence investigation in respect of the affairs of Comwezi.
7.2
Comwezi and the Grapsy Trust shall co-operate with CET in conducting the
due diligence investigation and shall procure that CET and its duly authorised
representatives are given every reasonable assistance in this regard and that all
documentation of Comwezi are made available for inspection.
7.3-7.5  …
7.6
CET shall have the sole and absolute discretion to proceed with or abandon
this Settlement Agreement based on the outcome of its own findings and conclusions
from the due diligence investigation.
7.7
CET shall, for purposes of the resolutive condition contained herein, notify
Comwezi by not later than 3 months after the Signature Date whether or not it is
satisfied with the outcome of its due diligence investigation and accordingly whether

it wishes to proceed with this transaction, provided that if CET fails to so notify
Comwezi timeously CET shall be deemed not to be satisfied.
10 RESOLUTIVE CONDITION
10.1
The Parties agree that this Settlement Agreement is subject to the resolutive
condition that CET has completed the due diligence investigation set out clause 7 in
respect of Comwezi and has notified Comwezi that it is satisfied with the outcome
thereof by no later than 3 (three) months after the Signature Date.
10.2
In the event of CET not notifying Comwezi that it is satisfied with the
outcome of the due diligence investigation, this Settlement Agreement will
automatically fail and be of no further force and effect and the Parties shall restore the
status quo ante as near as possible and no party shall have any claim against the other
party arising from this Settlement Agreement and for the avoidance of doubt, the
Parties will then only be able to rely on the terms of the Loan Agreement to enforce
its rights against the other.
10.3
The resolutive condition contained herein is imposed for the benefit of CET
and may be waived or relaxed, in writing, by CET prior to the period of 3 (three)
months after the Signature Date.'

[4] Comwezi argued that the power to relax the resolutive condition
did not entitle CET to extend the period within which it was required to
conduct the due diligence investigation. Accordingly, it submitted that
when that investigation was not completed within the three month period
specified in clause 10.1 the settlement agreement was automatically
terminated and the parties reverted to their respective positions in terms
of the loan agreement. It argued that the power to relax contained in
clause 10.3 was limited to a power to make the clause less stringent in its
operation and effect.  This argument was expressed in the following terms
in the heads of argument delivered on its behalf.
' … "relaxing" the resolutive condition is also very different from "extending" it, and
also quite distinct from extending the time allowed for complying with the condition.
Clause 10.3 notably does not say that the resolutive condition may be extended by
CET; nor that CET could extend the time for complying with that condition … Clause

10.3 should therefore not be read as if it did. A power to "relax" a condition does not
give licence to "alter" it, as "relaxation" and "alteration" are different concepts.'
In advancing this argument it relied on Ex parte Bain1 and Ronnie's
Motors (Pty) Ltd & Others v Van der Walt & Others.2

[5] In the heads of argument it was submitted that this approach
accorded with the ‘plain meaning’ of the word ‘relax’ and that it was not
open to us to go beyond that. That contention was based upon an
approach to the interpretation of documents that is no longer appropriate.
This court recently restated the correct approach in Natal Joint Municipal
Pension Fund v Endumeni Municipality3 in the following terms:
‘Interpretation is the process of attributing meaning to the words used in a document,
be it legislation, some other statutory instrument, or contract, having regard to the
context provided by reading the particular provision or provisions in the light of the
document as a whole and the circumstances attendant upon its coming into existence.
Whatever the nature of the document, consideration must be given to the language
used in the light of the ordinary rules of grammar and syntax; the context in which the
provision appears; the apparent purpose to which it is directed and the material known
to those responsible for its production. Where more than one meaning is possible each
possibility must be weighed in the light of all these factors. The process is objective
not subjective. A sensible meaning is to be preferred to one that leads to insensible or
unbusinesslike results or undermines the apparent purpose of the document. Judges
must be alert to, and guard against, the temptation to substitute what they regard as
reasonable, sensible or businesslike for the words actually used. To do so in regard to
a statute or statutory instrument is to cross the divide between interpretation and
legislation. In a contractual context it is to make a contract for the parties other than
the one they in fact made. The “inevitable point of departure is the language of the
provision itself”, read in context and having regard to the purpose of the provision and
the background to the preparation and production of the document.’

1 Ex parte Bain 1964 (2) SA 798 (C) 801D-F.
2 Ronnie's Motors (Pty) Ltd & Others v Van der Walt & Others 1962 (4) SA 660 (A).
3 Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) para 18.

[6] In argument before us counsel departed from the heads of
argument in the light of this judgment. Instead stress was placed upon the
portion of the quoted passage where it was said that the invariable point
of departure in an exercise in interpretation is the language of the
provision under consideration. Taking that as the starting point it was
submitted that the parties had stipulated a period within which the due
diligence investigation was to take place in the interests of certainty. It
was submitted that construing the power to ‘relax’ the provisions of the
resolutive condition as enabling CET to extend that period would
undercut the manifest purpose of creating certainty in regard to the
acquisition of the shareholding by CET. That certainty was desirable in
view of the fact that Command Holdings Ltd, a major shareholder in
Comwezi of which Mr Mowzer is the Chief Executive, and CET itself
were both listed on the alternative board of the JSE. There was
accordingly a public interest in achieving certainty in regard to ownership
of the shares in Comwezi. Presumably, for so long as the entire settlement
agreement might fall away, this could cause difficulties in filing public
accounts for both Command Holdings and CET.

[7] Accepting that the starting point is the language of the provision
under consideration, the issue is simply whether the power given to CET
in clause 10.3 to ‘relax’ the resolutive condition afforded CET the right to
extend the period within which it had to inform Comwezi that it was
satisfied with the outcome of the due diligence and, by necessary
inference, the period within which it was to conduct that exercise.
Comwezi contended that it did not and CET that it did. That is the sole
issue in this appeal as Comwezi did not contend that the exercise of the
power was subject to any tacit limitation, such as that it had to be

exercised bona fide and arbitrio boni viri4 and that it was not so
exercised.

[8] The word ‘relax’ in clause 10.3 cannot be read or construed in
isolation from the rest of that clause or from the provisions of clause 10.1.
In clause 10.3 it is counterpoised with the power to waive fulfilment of
the resolutive condition in clause 10.1. That power was given exclusively
to CET because the resolutive clause was inserted into the agreement for
its sole benefit. In other words, Comwezi was content to have CET as a
shareholder, but CET needed to be satisfied that the shares it was
acquiring were an appropriate recompense for its foregoing its monetary
claim to be paid the four million rand plus interest that it was owed under
the loan agreement. This is reinforced by clause 7.6 where it is said that it
is in CET’s ‘sole and absolute discretion’ to continue with the contract
after concluding the due diligence investigation.

[9] The resolutive condition in clause 10.1 has three elements. These
are the completion of the due diligence investigation provided in clause 7,
the giving of written notice of satisfaction with the outcome of that
investigation and the requirement that such notice be given within three
months of the date of signature of the settlement agreement. The power of
relaxation is given generally in relation to the condition as a whole. It is
helpful to consider how that power could be exercised in relation to each
element of the condition.

[10] Whilst the due diligence investigation is described in clause 7.1 as
‘comprehensive’, it is plain from the fact that CET had the power to

4 NBS Boland Bank Ltd v One Berg River Drive CC & others; Deeb & another v ABSA Bank Ltd;
Friedman v Standard Bank of SA Ltd 1999 (4) SA 928 (SCA) para 25.

dispense with it altogether by waiver that it was primarily for CET to
determine the scope of the enquiries that it wished to make pursuant to
the investigation and to decide what documents it needed for that
purpose. Comwezi was obliged to provide all documents required by
CET and to give all reasonable assistance in the conduct of the
investigation. It could not demand that CET be more thorough in its
enquiries or do more than it wished. In those circumstances, because CET
already had the power to determine the precise scope and extent of the
due diligence investigation, there can be no question of it needing or
exercising a power to relax the requirements of the investigation as
suggested to us.

[11] It was not suggested that the power of relaxation could be
exercised in relation to the obligation to give written notice of CET’s
satisfaction with the outcome of the investigation. That seems clear. To
relax that provision would indeed throw the operation of the entire
agreement into the morass of uncertainty that Comwezi’s counsel referred
to, because it would never be possible for the parties to know when or
whether finality had been reached.

[12] That leaves only the three month period in respect of which the
power of relaxation could be exercised. If, as contended by Comwezi,
that power cannot be exercised in relation to the time period then it has no
operative effect and, contrary to the submission that the starting point of
the interpretative exercise is the language of the provision under
consideration, we would not be interpreting the contract but altering it by
deleting the reference to a power to relax the resolutive condition. That is
impermissible. Whilst there may be circumstances in which a court can
disregard words in the process of interpretation, where, for example, they

were clearly included in error, those circumstances do not apply in this
case.

[13] Once it is recognised that the power of relaxation in clause 10.3
must relate to the three month period in clause 10.1 then its only possible
meaning is that it is a power to extend that period. Accepting that
conclusion, without conceding its correctness, an alternative argument
was advanced in reply that in that event the power could only be
exercised once and would thereafter be exhausted. This was based on the
provision in clause 10.3 that any relaxation be conveyed in writing prior
to the expiry of the three month period. However, that is not a sensible
interpretation of that portion of clause 10.3. The power is one to relax a
time period. The period of three months in clause 10.3 is the same three
month period as that in clause 10.1. If the latter period is relaxed by way
of an extension by a further three months the former must likewise be
relaxed. That is also consistent with the practicalities, because CET will
never be able to determine with certainty what period of extension is
necessary to complete the due diligence investigation. If it could only
exercise the power once that would tempt it to extend the period by an
unreasonably lengthy period. Counsel was unable to explain why it would
be permissible for it to extend the period by 12 months, but not by six
periods of two months. Nor was he able to suggest why an extension to
an indeterminate date, such as two weeks after the conclusion of the due
diligence investigation, would be impermissible. Those two examples
make it clear that the restriction for which he contended is unwarranted
by the language of the clause properly construed.

[14] One final point is worth mentioning. It is that Comwezi’s response
to the initial extensions of time by CET was to accept them and profess a

willingness to co-operate in the due diligence investigation. On
Comwezi’s argument the settlement agreement would have lapsed by
8 September 2010. Yet, as late as 26 January 2011 Mr Mowzer sent an e-
mail to CET’s attorney confirming that the due diligence investigation
would be completed by CET by 28 February 2011 ‘to meet with all other
deadlines in terms of the acquisition’. In other words Comwezi accepted
that the various extensions of time prior to that date, of which there had
been six, were proper and effective. Its conduct in regard to the
implementation of the agreement was therefore inconsistent with the
interpretation of the agreement for which it contends in this litigation.
That is a factor that reinforces the construction I have given to clause 10.3
and its use of the word ‘relax’.

[15] It was suggested that for us to place reliance on this conduct is
impermissible in the light of the exposition of the law in Natal Joint
Municipal Pension Fund v Endumeni Municipality, supra. However, that
is incorrect. In the past, where there was perceived ambiguity in a
contract, the courts held that the subsequent conduct of the parties in
implementing their agreement was a factor that could be taken into
account in preferring one interpretation to another.5 Now that regard is
had to all relevant context, irrespective of whether there is a perceived
ambiguity,6 there is no reason not to look at the conduct of the parties in
implementing the agreement. Where it is clear that they have both taken
the same approach to its implementation, and hence the meaning of the
provision in dispute, their conduct provides clear evidence of how

5 Shill v Milner 1937 AD 101 at 110-111; Shacklock v Shacklock 1949 (1) SA 91 (A) at 101; MTK
Saagmeule (Pty) Ltd v Killyman Estates (Pty) Ltd 1980 (3) SA 1 (A) at 12F-H.
6 Formerly it was said that ‘background circumstances’ were always admissible to provide context, but
‘surrounding circumstances’ could only be considered if there was ambiguity. That distinction was
swept away in KPMG Chartered Accountants (SA) v Securefin Ltd & another 2009 (4) SA 399 (SCA)
para 39

reasonable business people situated as they were and knowing what they
knew, would construe the disputed provision. It is therefore relevant to an
objective determination of the meaning of the words they have used and
the selection of the appropriate meaning from among those postulated by
the parties. This does not mean that, if the parties have implemented their
agreement in a manner that is inconsistent with any possible meaning of
the language used, the court can use their conduct to give that language
an otherwise impermissible meaning. In that situation their conduct may
be relevant to a claim for rectification of the agreement or may found an
estoppel, but it does not affect the proper construction of the provision
under consideration.

[16] In the result the appeal is dismissed with costs, such costs to
include the costs of two counsel where two counsel were employed.

M J D WALLIS
JUDGE OF APPEAL

Appearances

For appellants:
I V Maleka SC (with him P B J Farlam)
Instructed by: Edward Nathan Sonnenbergs,
Cape Town
Lovius Block, Bloemfontein

For respondent:
M J Fitzgerald SC (with him P A van Eeden)
Instructed by:
Hayes Inc, Cape Town
Naudes, Bloemfontein.