In 1967 the South African government and Total South Africa (Pty) Ltd concluded an agreement governing the transportation of crude oil by pipeline from Durban to an inland refinery at Sasolburg, based on a ‘neutrality principle’ ensuring the inland refinery would not be disadvantaged compared to coastal refineries. In 1991, Transnet SOC Ltd, which had succeeded the state entities responsible for the pipeline, concluded a variation agreement with Total and Sasol Oil (Pty) Ltd maintaining the neutrality principle but with a revised tariff formula. Clause 5 of the variation agreement provided that either party could give at least three years’ notice of an intention to ‘disregard’ the agreement, subject to a full conveyance agreement being prepared. From 2008 onwards Transnet implemented tariff increases that departed from the neutrality principle. Total and Sasol sued for declaratory relief, specific performance, and contractual damages (refunds of alleged overcharges). After earlier litigation confirming the binding force of the variation agreement, Transnet gave notice in September 2017 purporting to terminate the variation agreement with effect from September 2020. The High Court held that the agreement was not validly terminable in the absence of a new full agreement and that the respondents’ damages 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. It was declared that the variation agreement was terminable, was validly terminated by Transnet, and came to an end on 13 September 2020. The High Court’s order on these issues and on costs was set aside. Each party was ordered to pay its own costs in the Constitutional Court and the High Court.
The judgment clarifies the interpretation of termination clauses in long-term commercial contracts involving organs of state, rejecting interpretations that result in perpetual or ‘evergreen’ contracts absent clear language. It affirms that courts should avoid constructions leading to absurdity and commercial impracticality. The case is significant for state-owned entities and regulated industries, particularly in balancing historical contractual arrangements with modern constitutional and commercial realities.