Ashcor Secunda (Pty) Ltd v Sasol Synthetic Fuels (Pty) Ltd

Sasol Synthetic Fuels (Pty) Ltd (Sasol) produced fly-ash as a by-product of its coal-burning electricity generation process at Secunda. To commercially exploit the fly-ash extracted via the Fly-Ash Plant (FAP), Sasol entered into a written lease agreement with Ashcor Secunda (Pty) Ltd (Ashcor). The agreement provided that the lease would take effect 30 days after the FAP was repaired and made operational, with a lease period of 4 years and 11 months. The agreement included: monthly rental of R20,000 (clause 2.1); Sasol's right to review rental if it cost in excess of R150,000 to make the FAP operational (clause 2.1); disclaimers by Sasol regarding suitability of the premises (clause 5.1) and no guarantee as to the quantity or quality of ash produced (clause 5.2); and a provision allowing Ashcor to assess economic viability by 28 February 1998 and cancel with three months' notice (clauses 5.5 and 5.6). Ashcor subsequently sued Sasol for damages of R303 million (alternatively R179 million), alleging that Sasol breached the agreement by failing to repair and make the FAP operational. Ashcor claimed Sasol had an unlimited obligation to render the FAP operational, and alternatively sought rectification based on common error. Sasol spent approximately R1 million on the plant, well exceeding the R150,000 threshold, but Ashcor refused to pay increased rental.

• What was the proper interpretation of clause 1 of the agreement regarding when the lease would take effect and what constituted making the FAP 'operational'?
• Did Sasol have an obligation under the agreement to repair and make the FAP operational, and if so, what were the limits of that obligation?
• Could a tacit term be implied into the agreement that 'operational' meant capable of recovering all fly-ash produced by boilers 7, 8 and 9?
• What is the distinction between implied and tacit terms, and when can such terms be incorporated into a contract?
• Whether Ashcor's refusal to pay increased rental entitled Sasol to withhold its performance?
• Whether the claim for rectification based on common error was sustainable?

The appeal was dismissed with costs, including costs consequent upon the employment of two counsel. The order of Claasen J in the South Gauteng High Court absolving Sasol from the instance was upheld.

The binding legal principles established by this case are: (1) Where the language of a contract is clear and unambiguous, the court must give effect to the intention of the parties as expressed in the contract, not what either party may have had in mind (applying Scottish Union & National Insurance Company Ltd v Native Recruiting Corporation Ltd 1934 AD 458). (2) A tacit term cannot be imported into a contract in respect of any matter which the parties have expressly addressed and for which they have made express provision in the contract. Where parties have expressly agreed upon a term in unambiguous language, no reference can be had to surrounding circumstances to subvert that meaning (applying Robin v Guarantee Life Assurance Ltd 1984 (4) SA 558 (A)). (3) The distinction between implied terms and tacit terms is substantive, not merely academic: implied terms are standardized rules of law applied unless excluded; tacit terms must be found in the unexpressed intention of the parties. A term cannot be implied merely because it is reasonable - it can only be implied if it is considered to be good law in general (applying Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration 1974 (3) SA 506 (A) and South African Forestry Co Ltd v York Timbers Ltd 2005 (3) SA 323 (SCA)). (4) One party's repudiation, though not treated by the other as a cause for cancellation, may excuse the latter from formal acts preparatory to performance and entitle them to suspend performance until the guilty party reaffirms willingness and ability to perform, provided the aggrieved party remains ready, willing and able to perform (applying Moodley & another v Moodley & another 1990 (1) SA 427 (D)). (5) The parol evidence rule remains part of South African law: if a document was intended to provide a complete memorial of a jural act, extrinsic evidence may not contradict, add to or modify its meaning. Interpretation is a matter of law for the court, not for witnesses (applying KPMG Chartered Accountants (SA) v Securefin Ltd & another 2009 (4) SA 399 (SCA)).

The court made several non-binding observations: (1) Regarding terminology in contract law, Ponnan JA endorsed Prof Kerr's observation that employment of incorrect terminology leads to conceptual confusion, emphasizing the importance of properly distinguishing between implied and tacit terms. (2) The court commented on the admissibility of evidence in contract interpretation cases, noting that evidence was 'plainly inadmissible' to the extent it was adduced to determine what the parties' subjective intentions were (as opposed to what the language means), and that the trial court erred in relying on such evidence. (3) The court endorsed the dictum from KPMG that 'the time has arrived for us to accept that there is no merit in trying to distinguish between "background circumstances" and "surrounding circumstances". The distinction is artificial and, in addition, both terms are vague and confusing. Consequently, everything tends to be admitted. The terms "context" or "factual matrix" ought to suffice.' (4) On costs and exception procedure, the court noted that the rule in Algoa Milling Company v Arkell and Douglas 1918 AD 145 (that where a declaration discloses no cause of action, the defendant should have excepted and will only be entitled to costs as on exception) is not an inflexible rule that deprives the court of its discretion (applying Cohen v Hayward 1948 (3) SA 365 (A)). The court observed that it would have taken 'a very bold judge' to decide this matter on exception given how the case was pleaded with the rectification claim.

This case is significant in South African contract law for clarifying several important principles: (1) It reinforces the golden rule of contractual interpretation that clear and unambiguous language must be given effect according to its grammatical and ordinary meaning. (2) It clarifies the important distinction between implied terms (standardized rules of law) and tacit terms (based on unexpressed intention), and emphasizes that this distinction is not merely academic but has substantive legal consequences. (3) It reaffirms that tacit terms cannot be imported into a contract where the parties have expressly addressed the subject matter, even if the tacit term might seem reasonable. (4) It confirms the parol evidence rule and limits on the admissibility of extrinsic evidence in contract interpretation, emphasizing that interpretation is a matter of law for the court, not witnesses. (5) It illustrates the application of the principle of mutuality of performance - a party's repudiation may entitle the other party to withhold performance, and a repudiating party cannot take advantage of failures attributable to their own repudiation. (6) The case provides practical guidance on when exception procedure should be used versus proceeding to trial, and the court's discretion regarding costs in such circumstances.