The Trustees for the Time Being of the Bus Industry Restructuring Fund v Break Through Investments CC

The Bus Industry Restructuring Fund was established pursuant to a tripartite agreement between the Minister of Transport, the South African Bus Operators' Association, and labour unions to facilitate restructuring of the passenger bus industry. Participating bus operators were required to make contributions to the Fund. Kwa-Zulu Transport (Pty) Ltd (KZT), a participating operator with subsidised contracts from the Kwa-Zulu Natal Department of Transport, was placed under liquidation in August 2001 with outstanding contributions to the Fund. KZT's liquidators sold its bus transportation business to Basfour 2488 (Pty) Ltd (fourth respondent) in terms of an agreement of sale. Basfour assumed liability for amounts KZT owed to the Fund and took over the subsidised contracts. Basfour subsequently assigned its rights and obligations to the first, second, or third respondents, who each conducted different depots of the business as independent enterprises. The Fund claimed the outstanding amounts from the respondents based on these assignments. The respondents filed exceptions, arguing that clause 19.5 of the sale agreement prohibited Basfour from assigning 'any of its obligations in terms of this agreement' without prior written consent of the liquidators, which consent was not alleged in the particulars of claim.

• What is the proper interpretation of clause 19.5 of the sale agreement, specifically the phrase 'any of its obligations in terms of this agreement'?
• Does clause 19.5 prevent Basfour from assigning obligations owed to third parties (such as the Fund) that Basfour acquired pursuant to the sale agreement?
• Did the particulars of claim disclose a cause of action against the respondents in light of clause 19.5?
• What is the appropriate costs order where two independent exceptions were taken, one successful and one unsuccessful?

The appeal was allowed with costs, including costs of two counsel, to be paid by the first and second respondents jointly and severally. The order of the court a quo was set aside and replaced with: (1) the first exception is upheld; (2) paragraph 55 of the plaintiff's particulars of claim is struck out; (3) the plaintiff is granted leave to amend its particulars of claim within fifteen days if so advised; (4) the second exception is dismissed; (5) there is no order as to costs in the court a quo.

In interpreting a contractual provision prohibiting assignment of 'obligations in terms of this agreement', the phrase must be construed in context and with regard to the commercial purpose of the transaction. Where a business sale agreement includes a clause restricting assignment without consent, such clause should ordinarily be interpreted as applying only to obligations between the parties to that agreement itself, not to obligations owed to third parties that were acquired by the purchaser pursuant to the sale agreement. In exception proceedings, the exceptor bears the burden of showing that the provision cannot reasonably bear the interpretation contended for by the party excepted against. Where an alternative reasonable interpretation exists that avoids commercially absurd consequences, the court will not adopt an interpretation leading to such absurdity merely because the words might literally support it. The principle that courts must hesitate to set themselves up as arbiters of business efficacy only applies where the commercially nonsensical meaning appears so clearly from the wording that it cannot be avoided.

The court made observations about the statutory responsibilities of liquidators, noting their duties are essentially to obtain the best value for assets for creditors, present reports, file liquidation and distribution accounts, and distribute the estate accordingly. It would be unlikely in the extreme for liquidators to insist on controlling what a purchaser does with a business after acquisition and payment of the purchase price, particularly as they would expect to be discharged by the Master once the winding-up is completed. The court also observed that where parties to litigation make common cause and are represented by the same legal team throughout, no distinction between them in a costs order would ordinarily be justified, even if their interests in specific aspects of the litigation differ. Brand JA quoted with approval the principle from Lloyds of London Underwriting Syndicates that 'sophisticated semantic analysis is not the best way of arriving at an understanding of what the parties meant to achieve' and that a better approach is to consider what the parties hoped to achieve from a commercial interest perspective.

This case provides important guidance on the interpretation of contractual provisions restricting assignment of rights and obligations, particularly in the context of business sale agreements. It establishes that such clauses should be interpreted contextually and with regard to commercial purpose, and that courts will prefer an interpretation that avoids absurd commercial consequences if an alternative reasonable interpretation is available. The case also clarifies the approach to exception proceedings, reaffirming that an exceptor must show the claim cannot reasonably support the interpretation relied upon, not merely that an alternative interpretation is possible. It demonstrates the application of principles from cases such as Lewis v Oneanate (Pty) Ltd, Sassoon Confirming and Acceptance Co (Pty) Ltd v Barclays National Bank Ltd, and Cape Provincial Administration v Clifford Harris (Pty) Ltd in the context of business restructuring and insolvency transactions.