Rissik Street One Stop CC and another v Engen Petroleum Limited
| Jurisdiction | http://justis.com/jurisdiction/166,South Africa |
| Judge | Zondo CJ, Baqwa AJ, Kollapen J, Madlanga J, Majiedt J, Mbatha AJ, Mhlantla J, Rogers J and Tshiqi J |
| Judgment Date | 01 February 2023 |
| Docket Number | CCT 196/21 |
| Hearing Date | 04 August 2022 |
| Court | Constitutional Court |
Kollapen J (Zondo CJ, Baqwa AJ, Madlanga J, Majiedt J, Mbatha AJ, Mhlantla J, Rogers J and Tshiqi J concurring):
Introduction
Section 12B of the Petroleum Products Act [1] (PPA) was introduced in recognition of the deep inequality within the retail fuel industry and with the objective of transforming that industry. It introduced a normative framework of fairness and reasonableness that would apply to all contracts in the industry. It also created an arbitral mechanism to ensure that unfair or unreasonable contractual practices were capable of being identified and corrected. This case presents compelling evidence of the contours of that inequality while at the same time representing a searching test of the scope and efficacy of the legislative promise that section 12B heralded.
In Business Zone CC, [2] this Court expressed the importance of transforming the petroleum industry to ensure that unequal bargaining power in the industry was addressed for those doing business in that industry, as well as empowering historically disadvantaged South Africans in the petroleum and liquid fuels industry. Mhlantla J explained:
"One of the purposes of the [Petroleum Products] Amendment Act is set out in its preamble and is, amongst others, 'to promote transformation of the South African petroleum and liquid fuels industry'. Schedule 1 of the Amendment Act goes on to introduce an industry charter 'on empowering historically disadvantaged South Africans in the petroleum and liquid fuels industry'. Unequal bargaining power in the petroleum industry is pervasive even in more developed countries such
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Kollapen J (Zondo CJ, Baqwa AJ, Madlanga J, Majiedt J, Mbatha AJ, Mhlantla J, Rogers J and Tshiqi J concurring)
as our common law comparator, England, whose history of inequality pales in comparison with our own." [3]
Parties
The first applicant, Rissik Street One Stop CC, is a retailer of petroleum products and has since 1998 leased premises from Engen in terms of an operating lease agreement (operating lease). The second applicant is Mr Willem Johannes Knoesen, the sole member of the first applicant (collectively Rissik Street). The respondent, Engen Petroleum Limited (Engen), carries on business as a manufacturer, marketer and bulk distributor of petroleum, diesel and chemical products. It is the lessee of Portions 1, 3 and the Remainder of Erf 3[. . .], Pietersburg Township (premises) in terms of a notarial deed of lease (notarial lease) it concluded with the owner of the premises. Engen sublet the premises to Rissik Street.
Factual background
The operating lease that was in place at the time of the dispute between the parties was concluded on 30 March 2015. It commenced on 1 April 2015 and was scheduled to end on 30 June 2018.
In terms of the operating lease, Engen was obliged to furnish Rissik Street with at least 12 months' notice if it intended not to renew the operating lease. The operating lease recognised Rissik Street's right to sell the business in the event of the non-renewal of the lease, in which event Rissik Street would have a period of 12 months prior to the termination of the lease within which to sell the business. The operating lease provided that Engen could not unreasonably withhold its consent to any proposed sale. This was presumably in recognition that Rissik Street had an "entrenched value" in the business, which it was entitled to realise in the event of the termination of the operating lease.
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Kollapen J (Zondo CJ, Baqwa AJ, Madlanga J, Majiedt J, Mbatha AJ, Mhlantla J, Rogers J and Tshiqi J concurring)
Prior to the termination of the notarial lease and the operating lease, the landowner required a R3 million payment from Engen as a condition to renew the notarial lease. Engen agreed to pay the R3 million and the notarial lease was extended for 20 years. Engen in turn sought to recover the R3 million paid to the landowner from Rissik Street by requesting it to pay the R3 million as a condition for renewing the operating lease. The parties were unable to reach agreement in relation to the R3 million payment, resulting in the operating lease not being renewed.
When the parties were unable to reach agreement on the renewal of the operating lease, Engen gave notice of termination on 2 October 2017 and advised Rissik Street that the operating lease would terminate on 31 October 2018. This was to accommodate the 12-month period within which Rissik Street had the right to sell, as provided for in the operating lease. Engen further advised Rissik Street of their right to seek a purchaser for the business.
On 25 May 2018, Rissik Street introduced a potential purchaser to Engen and sought Engen's approval. [4] Engen refused to give its approval. When Rissik Street requested reasons for the refusal, Engen, purporting to rely on clause 10.1 of Schedule 3 to the operating lease, took the position that its refusal constituted an "absolute and unfettered" discretion as provided for in the operating lease and that it need not furnish Rissik Street with any reasons for the decision. This was on 22 June 2018.
Engen's letter in response to Rissik Street's request to approve the sale reads:
We refer to your correspondence of even date.
As you are no doubt aware, in terms of clause 10.1 of Schedule 3 to the Agreement of Lease and Operation of Service Station between the parties:
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Kollapen J (Zondo CJ, Baqwa AJ, Madlanga J, Majiedt J, Mbatha AJ, Mhlantla J, Rogers J and Tshiqi J concurring)
'The exercise of any discretion by [Engen] contemplated by the provisions of this Schedule 3 shall be absolute and unfettered, and [Engen] need not furnish the [Rissik Street] with its reasons for any such exercise.'
Our rights remain strictly reserved."
Rissik Street's request for arbitration
On 25 July 2018, Rissik Street submitted a request for arbitration to the Controller of Petroleum Products (Controller), in terms of section 12B of the PPA alleging an unfair or unreasonable contractual practice on the part of Engen. Rissik Street's owner, Mr Knoesen, complained that, among other things, he had introduced two potential purchasers with the requisite supporting documents in May 2018, but Engen had refused to sell to either of them and refused to provide reasons. This left Rissik Street unable to exercise its right in terms of the operating lease. If it did not know why particular buyers were not approved, it was unable to remedy the defect or determine whether Engen's consent had been unreasonably withheld. Mr Knoesen complained:
I am now faced with the situation at the end of the franchise period where my business will be terminated on 31 October 2018.
Although I have a clear contractual right to sell the business and to the proceeds thereof, Engen has, without providing any reasons thereto, refused to authorise the purchase by any party."
Rissik Street concluded its request to the Controller by asserting that it wished to sell the business and to be afforded the opportunity to do so without being frustrated by Engen at every turn.
On 7 September 2018, Rissik Street wrote an email to the Controller enquiring as to when they could expect a response to their request for arbitration submitted on 26 July 2018. No response was received. On 17 October 2018, Rissik Street sent a further email to the Controller requesting an urgent update regarding their section 12B
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Kollapen J (Zondo CJ, Baqwa AJ, Madlanga J, Majiedt J, Mbatha AJ, Mhlantla J, Rogers J and Tshiqi J concurring)
arbitration request. This was followed by further emails to the Controller on 28 February 2019 and 5 March 2019, neither of which elicited any response.
On 17 January 2019, and while waiting for the decision of the Controller, Rissik Street introduced another potential purchaser of the business to Engen. The proposed purchaser was willing to pay both the purchase price and the R3 million premium. Engen adopted the stance that it did not need to consider the application as the operating lease between itself and Rissik Street had terminated by effluxion of time on 31 October 2018.
On 22 January 2019, Engen gave Rissik Street written notice to vacate the premises. Rissik Street refused to vacate the premises and in March 2019, Engen instituted eviction proceedings against Rissik Street in the High Court of South Africa, Limpopo Division, Polokwane.
Rissik Street opposed the eviction application, filed an opposing affidavit and brought a counter-application for the proceedings to be stayed pending the decision of the Controller. In July 2019, the Controller acting in terms of section 12B, referred the matter to arbitration. The specific issues referred to arbitration were:
By requesting an amount of R3 million for 'goodwill' in order to renew their lease agreement. [Rissik Street] had never been required to pay such an amount previously when renewing the lease, as the Franchisee of the Rissik Street Engen for the past twenty years, the goodwill generated towards [Rissik Street] would have been due to the action of the [Rissik Street] and its employees not Engen;
By not engaging with [Rissik Street] in trying to resolve the matter and serving [Rissik Street] with a notice of non-renewal in terms of 44.2 Schedule 2 of the Operating Lease no reasons were provided; and
By refusing to authorise sale to either potential purchaser provided for by [Rissik Street] with no reasons thereof. As reasons for refusal were not provided [Rissik Street] is unable to remedy that defect or sourcing further interested buyers."
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Kollapen J (Zondo CJ, Baqwa AJ, Madlanga J, Majiedt J, Mbatha AJ, Mhlantla J, Rogers J and Tshiqi J concurring)
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