Engen Petroleum Limited v Rissik Street One Stop CC t/a Rissik Street Engen and Another

Engen Petroleum Limited (Engen) leased premises for operating a fuel retail station to Rissik Street One Stop CC (Rissik Street Engen), whose sole member was Willem Knoesen. The lease agreement was concluded on 30 March 2015 for a term ending 30 June 2018. When the lease approached expiry, Engen demanded an upfront payment of R3 million (allegedly to recoup costs paid to the property owner) as a condition for renewal. Rissik Street Engen refused and could not afford this payment. On 2 October 2017, Engen gave notice it would not renew the lease. Under clause 44.2 of Schedule 2 to the lease, Rissik Street Engen had the right to sell the business during the remaining lease period, with Engen's consent not to be unreasonably withheld. Rissik Street Engen introduced two prospective purchasers (on 25 May 2018 and 17 January 2019) but Engen refused consent without providing reasons. On 25 July 2018, Knoesen submitted a request to the Controller of Petroleum Products to refer the dispute to arbitration under s 12B of the Petroleum Products Act 120 of 1977, alleging unfair and unreasonable contractual practices. The lease expired (extended to 31 October 2018) but Rissik Street Engen refused to vacate. On 14 March 2019, Engen brought eviction proceedings. Rissik Street Engen counter-applied for a stay pending arbitration and an interdict preventing interference with operations. The High Court (Kganyago J) granted the stay and interdict. Engen appealed.

• Whether a referral to arbitration under s 12B of the Petroleum Products Act 120 of 1977 operates to stay eviction proceedings after a lease has expired by effluxion of time
• Whether the High Court properly exercised its discretion in granting a stay of eviction proceedings pending arbitration
• The proper interpretation of s 12B of the Petroleum Products Act and the remedial powers of an arbitrator appointed thereunder
• Whether a fuel retailer has a right to remain in occupation of premises after expiry of a lease agreement pending sale of the business
• Whether failure to provide reasons for refusal to consent to a sale constitutes an unfair or unreasonable contractual practice
• The scope and limits of an arbitrator's jurisdiction under s 12B

The appeal succeeded with costs. The High Court orders were set aside. The counter-application was dismissed. The first and second respondents (and all occupying through them) were ordered to vacate the premises within 30 days. The Sheriff was authorised to take necessary steps to give effect to the eviction. The respondents were ordered to pay the appellant's taxed costs on the attorney and client scale.

The binding legal principles established are: (1) An arbitrator appointed under s 12B of the Petroleum Products Act 120 of 1977 has jurisdiction only over the specific contractual practices alleged to be unfair or unreasonable and referred by the Controller. The arbitrator's remedial powers under s 12B(4)(a) are limited to correcting the contractual practices complained of and cannot extend beyond the scope of the referral. (2) Where a lease agreement expires by effluxion of time and the lessee does not challenge the non-extension or termination as an unfair or unreasonable contractual practice in the request for arbitration under s 12B, the arbitrator has no power to reinstate or extend the lease agreement. (3) A referral to arbitration under s 12B does not automatically operate to suspend or stay eviction proceedings instituted by the lessor after expiry of a lease. Whether arbitration suspends litigation depends on the terms of the contract and the nature of the disputes referred. (4) A court cannot grant a stay of eviction proceedings on the basis that it would preserve rights for determination in arbitration, where those rights (such as continued occupation or lease extension) are not within the scope of issues referred to arbitration and the arbitrator would have no power to grant such relief. (5) Where a lease agreement grants a right to sell a business upon non-renewal, that right must ordinarily be exercised during the currency of the lease. Absent specific contractual provision or arbitral relief addressing lease termination, the right to sell does not entitle the lessee to continue occupying premises after lease expiry.

The Court made obiter observations that: (1) Although Engen contended it had no obligation to provide reasons for rejecting offers to purchase, this contention must be rejected. Under clause 44.2, Engen was obliged to furnish reasons for rejecting offers to purchase submitted during the notice period, to enable the dealer to determine whether rejection was based on valid grounds and to submit offers meeting Engen's requirements. This obligation arises from the express provision that Engen shall not "unreasonably withhold its consent" - a dealer cannot assess reasonableness without knowing the reasons for refusal. (2) The Court noted that Engen's demand for R3 million appeared to be an attempt to recoup costs it had paid to the landlord as a "lease premium" under its notarial deed of lease, rather than genuine "goodwill." However, the Court did not need to decide whether this demand constituted an unfair contractual practice, as that issue was for the arbitrator. (3) The Court observed that the effect of the High Court's stay was to grant interim relief that could not be obtained as final relief in arbitration - an improper exercise of judicial discretion. This reinforces the principle that interim relief should not pre-empt or exceed what can be granted finally.

This judgment is significant for South African commercial and petroleum regulation law as it clarifies the scope and limitations of arbitration under s 12B of the Petroleum Products Act 120 of 1977. It establishes that: (1) The remedial powers of an arbitrator under s 12B are confined to correcting the specific contractual practices complained of and referred by the Controller. (2) An arbitrator cannot grant relief beyond the terms of reference, including reinstating or extending expired lease agreements where such relief was not sought in the referral request. (3) A referral to arbitration under s 12B does not automatically operate to stay eviction proceedings, particularly where the lease has expired by effluxion of time and the expiry itself is not challenged as an unfair contractual practice. (4) Courts cannot grant interim relief (such as stays of eviction) that exceed what could be granted as final relief in the arbitration proceedings. (5) The judgment provides important guidance on the relationship between contractual rights (such as the right to sell a business), lease termination, and continued occupation. It confirms that absent a valid subsisting lease or arbitral relief specifically addressing the lease termination, a fuel retailer cannot rely on the right to sell the business as security against eviction. The case refines the application of the Constitutional Court's judgment in Business Zone 1010 CC v Engen Petroleum Limited and resolves conflicting High Court approaches to s 12B referrals and eviction proceedings.