Namibian Minerals Corporation Ltd v Benguela Concessions Ltd

• Jurisdiction: South Africa
• Judge: E M Grosskopf JA, F H Grosskopf JA, Harms JA, Schutz JA, and Plewman JA
• Judgment Date: 27 November 1996
• Citation: 1997 (2) SA 548 (A)
• Docket Number: 430/94
• Hearing Date: 04 November 1996
• Counsel: M D Kuper (with him AG Binns-Ward and OL Rogers) for the appellant D J Shaw (with him LA Rose-Innes) for the respondent
• Court: Appellate Division

E M Grosskopf JA:

The appellant, a company incorporated in Gibraltar, sued the G first respondent, a South African company, and its chief executive officer, one Wilson, for damages in the Cape Provincial Division. The claim against Wilson has been settled and he is no longer a party before the Court. The case against the first respondent (to which I shall refer hereinafter as the respondent) was based on breach of contract. H When the matter came before the Court a quo (Conradie J) a separation of issues was ordered in terms of Rule of Court 33(4). The issues to be tried first related to the validity of the alleged contract and the further question whether certain rights under the contract, if valid, could properly have been exercised in October 1992. The import of this latter issue will appear more clearly after I have discussed the facts of the case. I The Court a quo found in favour of the respondent both on the invalidity of the contract and on the question relating to the exercise of rights thereunder. With the leave of the Court a quo the appellant now appeals to this Court.

The main facts are briefly as follows. The respondent was the holder, either by itself or through subsidiaries, of marine diamond concessions along the west coast of South Africa. It also had (through a subsidiary) J

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a so-called 'work contract' whereby it was entitled to exploit diamonds in a marine A concession area along the coast of Namibia held by CDM (Pty) Ltd ('CDM'). The respondent's rights under the work contract were to remain in force for three years after the date of signing of the contract (ie until 10 July 1993) but could be renewed at the discretion of CDM.

The appellant was interested in participating in the exploitation of the Namibian B concession. It proposed to provide finance for a joint venture. Various negotiations were held between the parties. The appellant was throughout represented by one Holberton who was resident in England.

On 12 March 1992 the parties signed a document headed 'Heads of Agreement' relating to the exploitation of a defined part of the off-shore area covered by the C Namibian work contract. I shall refer to this document as the March heads. It recorded that the appellant would

'use its best endeavours to provide finance and backing up to the value of Canadian $1 500 000 to establish economic activity on a scale, and in a format and type, which shall be recommended by (the respondent) and approved by (the appellant)'. D

This was referred to as stage 1, being the initial three-year period of the CDM contract. The respondent was to be the project and technical manager to the venture and would be rewarded for its services. The document set out how the joint venture was to be financed after stage 1, and how profits would be shared. E

The March heads were subject to a number of conditions, the main ones of which were the following. Condition 1 was that CDM would grant an extension of the work contract for a period of not less than three years from April 1992. Condition 4 was: F

'The entering into by the parties of an agreement to give full force and effect to the terms and conditions expressed herein and to more fully define the relationship, to include, inter alia, rights of transfer and assignment to associated companies, establishment of modus operandi in Namibia, terms and conditions of the manager's appointment, basis of reporting, accounting and audit, financial structure, responsibilities and other such matters as may reasonably be required by either party. The parties shall endeavour to complete this agreement within three months of the date hereof.' G

Finally, condition 6 required the respondent to 'confirm a precise definition of the area' in which the proposed joint venture would operate. The significance of this condition was that the respondent had granted rights to exploit a part of the area covered by its H work contract to a Canadian company represented by one Stephenson, and there was a dispute about the extent of this area. In particular, Stephenson claimed a part of the area earmarked in the March heads for the joint venture between the parties.

After the conditions there appeared the clause which is of primary importance in the present appeal. In it the parties are called Silven (the then name of the appellant) and I Benco (an acronym of the respondent's name). The clause reads as follows:

'In the event that the parties are unable to obtain CDM's consent to a further extension beyond the three-year period, or in the event Silven is not satisfied by the venture returns, Benco shall offer the right of a farm-in to Silven in one or more concession areas it holds in the Republic of South Africa of similar J

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attraction on terms no less favourable than those stated herein.' A

I shall refer to this clause as the farm-in clause.

After conclusion of the March heads the parties attempted to implement it. There B were, however, a number of obstacles that delayed progress. CDM was not prepared to grant an extension of the work contract. Stephenson remained obdurate in his territorial claims. In the result Holberton (on behalf of the appellant) started casting his eyes towards the respondent's South African concession areas. In this he relied on the farm-in clause. The respondent was, however, not inclined to be accommodating in regard to its South African interests. It had commenced flirting with BHP Minerals, a C major mining house, with a view to a joint venture in the respondent's South African concessions.

The matter came to a head in July 1992. Holberton came to Cape Town to discuss matters with the respondent. Stephenson was also in Cape Town at the time. In the result, the obstacles to the joint venture between the parties were overcome. The D respondent managed to secure an agreement with Stephenson which, although it did not fully meet the appellant's wishes, nevertheless gave the joint venture an adequate unchallenged area. As far as CDM was concerned, the parties agreed to proceed without a guarantee that the work contract would be extended. Other conditions had E been satisfied or were deemed to have been satisfied. A new contract was concluded, which I propose calling the July agreement.

The July agreement commenced by setting out the history of the matter. It then recorded an undertaking that the appellant would provide finance and backing to the value of Canadian $1,5 million to fund the joint venture. The agreement then adverted F to each of the six conditions laid down in the March heads. In regard to condition 1 (the extension of the work contract), it recorded that CDM's agreement had not been obtained, but that the respondent anticipated that CDM might well in the future grant extensions, and that the parties had agreed that the joint venture would proceed G nevertheless. As far as the area was concerned (condition 6), the July agreement provided a definition.

The terms of the proposed joint venture were set out in clause 3. The venture was to be called the Benib Joint Venture. Provisions were laid down regarding its duration, purpose, management structure, funding and distribution of profits. H

Clause 4 of the July agreement read as follows:

'The laws of the Republic of South Africa shall apply. Other rights and obligations reflected in the March heads shall remain. Matters dealt with in this agreement shall be governed by this agreement.' I

It was common cause before us that the 'rights and obligations' referred to in this clause were mainly, if not solely, those flowing from the farm-in clause.

The agreement was signed on 9 July 1992. Two copies of the agreement were prepared. They were both signed by Holberton on behalf of the appellant and by Wilson, the second defendant in the Court a quo, on behalf of the respondent. These signatures were witnessed by J

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one Miller (a business associate of Holberton's) and one Smith, a director of the A respondent company.

Holberton still hoped that Stephenson might agree to an extension of the area of the joint venture. He therefore left his copy of the agreement with Wilson. The arrangement was that if Wilson could obtain a further concession from Stephenson, he B would amend the area description in the two contracts, initial the amendments, and send the agreements to Holberton for signature.

Having settled matters, as he thought, Holberton returned home to the United Kingdom.

Soon after the conclusion of the July agreement, Wilson regretted that he had entered C into it. The reason was probably that the rights granted to the appellant would complicate the respondent's negotiations with BHP concerning the South African concessions. In other words, it was the farm-in clause that was worrying him. Faced with this problem Wilson acted boldly and decisively. He tore off and destroyed the D parts of the two duplicate originals of the agreements on which the signatures appeared (both copies being fortuitously in his possession) and subsequently denied that he had signed them. It is indicative of his reasons for doing so that copies of the letters to the appellant in which these denials appeared were sent also to BHP. As regards the March heads, he contended that the various conditions (and particularly E the one relating to an extension of time by CDM of the work contract) had not been satisfied, and that the March heads consequently also did not grant any contractual rights to the appellant.

Wilson's denial that he had signed the July agreement, and his contention on behalf of the respondent that it was not bound by any joint venture agreement, was treated by F the appellant as a repudiation of the contract between it and the respondent. It accepted the repudiation on 25 September 1992 and terminated the contract. Subsequently...