Sonarep (SA) (Pty) Ltd v Motorcraft (Pty) Ltd

• Jurisdiction: South Africa
• Judge: Leon J, Howard J and Kumleben J
• Judgment Date: 30 October 1980
• Citation: 1981 (1) SA 889 (N)
• Hearing Date: 22 August 1980
• Court: Natal Provincial Division

Kumleben, J.:

Appellant and respondent were parties to a written agreement of lease concluded on 20 November 1970, in terms of which certain property was leased by respondent to appellant for a period of seven and a half F years from 1 February 1971. In addition to a provision for an increase in the monthly rental twice during the currency of the lease, clause 27 thereof reads as follows:

"Should the rand, the official currency of the Republic of South Africa, be devalued in terms of sterling or US dollars at any time from the act of signature hereof, then the monthly rental payable as from the first day of the month following such devaluation shall be increased to the extent that it becomes equal to what the monthly rental was prior to the G devaluation in terms of the currency in terms of which the rand was devalued."

The dispute turns upon the validity of, and construction to be placed upon, this clause. Respondent maintained that, having regard to the provisions of this clause, an amount of R36 566 was still due as rent. Appellant averred that on the construction it placed upon this clause an H overpayment of R131,54 had in fact taken place. The grounds which gave rise at that stage to these differing conclusions need not be set out. Respondent applied in the Court below by way of notice of motion for payment of the amount allegedly due and in its replying affidavit reduced its claim to R17 992,88. Appellant, in its answering affidavit deposed to by Mr Concha, denied that this amount was due and disputed the interpretation of clause 27 on which this claim was based. In fact in the first place appellant challenged the validity of this clause, and alternatively contended that on a proper construction of its terms no arrear rental was owing to respondent.

Kumleben J

After argument the Court a quo at the conclusion of its ex tempore judgment ruled that:

"(a)

Clause 27 has a clear meaning;

(b)

A clause 27 is capable of being applied to the changed circumstances which came about consequent upon the breakdown of the Bretton Woods Agreement, save and except for the period of the managed B flotation of the rand between 21 June 1974 and 26 June 1975, a period which, however, seems to have no bearing upon the result of this application;

(c)

the rental payable under the agreement falls to be increased as follows:

(i)

by 4,76 per cent on 1 January 1972;

(ii)

by a further 4,202 per cent on 1 November 1972;

(iii)

by a further 4,76 per cent on 1 July 1975;

(iv)

C by a further 17,89 per cent on 1 October 1975.

(d)

the increases apply to whatever rental is payable under the lease;

(e)

all other fluctuations in exchange rates between the rand, on the one hand, and the dollar and/or the pound sterling, on the other D hand, fall to be ignored including that which came about as a result of the revaluation of the rand on 5 June 1973."

It had been agreed that arithmetical calculations to determine the precise amount due, if any, should be deferred until the above ruling on the interpretation of the clause was given. At a further hearing the ruling in para (c) above was amplified to read:

E "The rental payable under the agreement falls to be increased in accordance with the provisions of clause 27 of the lease by reason of the various percentages reflected in sub-paras (i) to (iv) inclusive of para (c)."

The parties agreed on the result of the calculation based upon the F declaratur. Appellant was accordingly ordered to pay respondent R17 977,54 together with interest thereon at the rate of 11 per cent per annum from 31 July 1978 to date of payment and costs. This appeal is directed at the ruling which gave rise to this award.

It is perhaps advisable at this stage to refer briefly to the grounds on which the Court based its ruling and award. The Court held that:

(a)

At the time the lease was concluded clause 27 presented no problems in its application. The rand, pound and dollar had fixed values in relation to gold. Any devaluation of the rand in terms of gold would therefore cause a devaluation in a like percentage of its value against both the pound and the dollar. G

(b)

The devaluations contemplated and intended by the provisions of this H clause were those resulting from a deliberate and official act on the part of the South African monetary authorities as opposed to differences in the exchange rate caused by fluctuations in the market.

(c)

It was acknowledged that difficulties could arise in the application of the clause if the value of the rand were fixed, not in relation to gold, but in terms of both the dollar and the pound and the rand was thereafter not

"devalued equally against both the currencies or, alternatively, (was) not devalued against one of the currencies only and the link between it and the other currency severed at the same time".

Kumleben J

(Judgment at 162 of the record.) However, this, the Court concluded, was no more than a notional possibility which did not eventuate.

(d)

The clause had as its intention, in the broad sense,

A "that during the currency of the lease the 'real' rental (if by real rental one means the rental in terms of either dollars or sterling) should be maintained".

(Judgment at 164 of the record.) The parties sought to achieve this purpose by expressly linking each adjustment to official acts on the part of the SA monetary authorities. This was the intention expressly B reflected in this clause. Such intention was therefore to prevail notwithstanding the fact that fluctuations in the rate of exchange caused by other prevailing conditions of the foreign exchange market would more realistically maintain such "real rental". In other words, once such C official acts were decided upon as the criteria and incorporated in the clause, such acts remained the touchstone for the duration of the lease even if their application no longer served the underlying concept which gave rise to the inclusion of this clause in the agreement. There was therefore no reason to conclude that this clause was no longer operative when rates of exchange were determined by currencies which were "floating" without restriction or were under a managed system of flotation.

(e)

That the clause neither expressly nor impliedly referred to "revaluation" and that any such increase in the value of the rand was to be ignored. D

On its interpretation of clause 27 the Court a quo held that four devaluations during the currency of the lease were to be taken into E account. They are those set out in para (c) of the ruling of the Court. The recognition and calculation of the first two devaluations (of 4,76 per cent and 4,202 per cent) were not straightforward and are explained at 166 and 167 of the judgment. Two experts in this field of economics, Mr Geldenhuys and Mr Muller, submitted affidavits on behalf of appellant and F respondent respectively. On the supposition that the Court had correctly construed clause 27, they agreed with its conclusion as set out in the said para (c). This was therefore not an issue on appeal.

In addition to explaining these devaluations, the two economists in their affidavits gave a general exposition of the international monetary scene G over the relevant period with particular reference to the position in South Africa. This evidence was succinctly summarised by the Court a quo as follows:

"At the time the lease was concluded the international monetary system and in particular exchange rates between currencies was based on the so-called Bretton Woods Agreement which was drawn up, so it would seem, at the United Nations Monetary and Financial Conference held in July 1944 at H Bretton Woods, New Hampshire, USA. In terms of this agreement the currencies of the participating countries, which included South Africa, the United States and the United Kingdom, were fixed in terms of a specified mass of gold. The value of the rand, the dollar and the pound sterling, therefore, was fixed in terms of gold and it follows that this had the effect of fixing values as between the currencies themselves. The rates thus fixed in relation to gold (sic) was what might be termed the official rates of exchange existing between the currencies of all those countries which were parties to the Bretton Woods Agreement or, as it was called, the gold parity of their currency. At the same time, however, foreign exchange was bought and sold on the money markets of the world and this, in turn, led dealers in foreign currency to quote differential buying and selling rates for the various currencies which differed from the official exchange rates fixed in terms of the

Kumleben J

Bretton Woods Agreement. It was, however, a term of the Bretton Woods Agreement, that member countries would keep the rate of exchange on the open market to within 1 per cent of the official gold parity. In A addition, it would seem, that for historical reasons South Africa also maintained a fixed rate of exchange with the pound sterling, although, as I understand the position, this was probably either an unnecessary step or one with no material bearing on the matter since the natural effect of each currency having a rate of exchange fixed in terms of gold was to maintain a fixed rate of exchange between currencies inter se at least insofar as the official rate of exchange was concerned.

The Bretton Woods Agreement, with all its ramifications, was in B existence at the time the lease between the parties was entered into and this is something to which I shall return later in this judgment.

On 15 August 1971 President Nixon of the United States of America ended the convertibility of the dollar into gold and for practical purposes this marked the end of the Bretton Woods Agreement since it was the convertibility into gold which formed the very basis of all that the Bretton Woods...