Transnet SOC Limited v Total South Africa (Pty) Limited and Another

In 1967 the South African government and Total South Africa (Pty) Ltd concluded an agreement for the transportation of crude oil by pipeline from Durban to an inland refinery at Sasolburg. The agreement embodied a ‘neutrality principle’, ensuring that the inland refinery would not be disadvantaged in transport costs compared to coastal refineries. In 1991 Transnet SOC Ltd, as successor to the state entity responsible for pipelines, concluded a variation agreement with Total and Sasol Oil (Pty) Ltd maintaining the neutrality principle under a revised tariff formula. Clause 5 of the variation agreement allowed each party to give at least three years’ notice of an intention to ‘disregard’ the agreement, in vague terms referring to a contemplated full conveyance agreement. From 2008 and 2011 Transnet applied tariff increases that departed from neutrality. Total and Sasol sued in the High Court seeking declaratory relief, specific performance and refunds of alleged overcharges. After losing earlier litigation confirming the validity of the variation agreement, Transnet gave three years’ notice in September 2017 purporting to terminate it. The High Court held that the variation agreement was not validly terminable without a new agreement and that the refund claims disclosed a cause of action. Transnet sought leave to appeal to the Constitutional Court.

Leave to appeal was granted only on the termination issues; the appeal was upheld; the variation agreement was declared terminable and validly terminated on 13 September 2020; the High Court’s order on those issues and costs was set aside; each party was ordered to pay its own costs in the Constitutional Court and the High Court.

The case clarifies the interpretation of termination clauses in long-term commercial contracts involving organs of state, rejecting constructions that result in perpetual or ‘evergreen’ contracts absent clear language. It confirms that courts will favour commercially sensible interpretations consistent with contractual text and context, even in historically rooted agreements involving public entities.