Case CCT196/21
[2023] ZACC 04
Hearing Date: 04 August 2022
Judgement Date: 01 February 2023
Post Judgment Media Summary
The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.
On Wednesday, 1 February 2023 at 10h00, the Constitutional Court handed down judgment in an application for leave to appeal against the judgment and order of the Supreme Court of Appeal which concluded that the High Court of South Africa, Limpopo Division, Polokwane, had misdirected itself in granting a stay of eviction proceedings. The application concerned section 12B of the Petroleum Products Act 120 of 1977 (PPA) and its implications on contractual relations in the retail fuel industry.
The application was brought by Rissik Street One Stop CC t/a Rissik Street Engen, as a retailer of petroleum products, and Mr Willem Johannes Knoesen, as the sole member of the first applicant (collectively Rissik Street) against Engen Petroleum Limited (Engen). Engen is the lessor of certain portions of land in terms of a notarial deed of lease concluded with the owner of the premises. Engen sublet these premises to Rissik Street in terms of an operating lease.
The operating lease was concluded between the parties on 30 March 2015. The agreement provided that upon notice of Engen’s intention not to renew the operating lease, Rissik Street would obtain a right to sell the business in the 12-month period prior to such termination. The operating lease further provided that Engen could not unreasonably withhold its consent to any proposed sale in recognition of Rissik Street’s “entrenched value” in the business which they were entitled to realise upon termination of the operating lease. On 2 October 2017, Engen issued a notice of termination of the operating lease and advised Rissik Street that the operating lease would terminate on 31 October 2018. Exercising their right to sell the business, Rissik Street proposed two potential purchasers to Engen for its consideration. Engen refused to consent to the sale of the business to either of the proposed purchasers. Engen further refused to respond to Rissik Street’s request for reasons for the withholding of consent, citing its “absolute and unfettered” discretion contained in the operating lease.
On 25 July 2018, Rissik Street submitted a request for arbitration to the Controller in terms of section 12B of the PPA, alleging that unfair or unreasonable contractual practices had occurred. The practices complained of pertained to Engen’s refusal to grant consent for the sale of the business without reasons for such refusal being furnished. The relief sought by Rissik Street was the ability to sell the business without being frustrated by Engen at every turn. Despite several follow-ups to the Controller, Rissik Street received no response to its request for referral to arbitration until July 2019. By this time, an additional purchaser had been introduced, with Engen choosing not to entertain the offer on the basis that the operating lease had terminated by effluxion of time, and Engen was no longer obliged to consider further applications for the purchase of the business.
On 22 January 2019, Engen gave Rissik Street written notice to vacate the premises. Rissik Street refused to vacate the premises and Engen subsequently initiated eviction proceedings in the High Court. Rissik Street brought a counter-application for the proceedings to be stayed pending the decision of the Controller. The specific issues referred to arbitration did not include the pending eviction against Rissik Street. Engen thus argued that Rissik Street was in unlawful occupation of the property and they were under no contractual obligation to allow such occupation to continue. Additionally, Engen submitted that Rissik Street laboured under the incorrect premise that their right sell the premises was accompanied by the entitlement to remain in occupation of the premises pending such sale.
Rissik Street argued that section 12B of the PPA had been introduced to address imbalances in the relationship between retailers and wholesalers in the petroleum industry. The provision empowered an arbitrator to make a corrective order on a dispute regarding an unfair or unreasonable contractual practice. Such awarded, argued Rissik Street, could include an award allowing them to remain in occupation of the premises on the same terms and conditions as during the period within which they were entitled to sell the business.
The High Court refused to grant the order of eviction pending finalisation of the arbitration proceedings. Additionally, it interdicted Engen from taking any steps that would adversely affect the operations of Rissik Street pending the final outcome of the process referred to the Controller. The High Court concluded that the arbitrator was entitled to make an order for the reinstatement of the operating lease if it deemed such to be necessary in order to correct an unfair or unreasonable contractual practice.
Following the order of the High Court, Engen was granted leave to appeal in the Supreme Court of Appeal. Engen contended that the High Court had erred in its conclusion that Rissik Street would be at liberty to seek reinstatement of the operating lease at arbitration. Engen submitted that Rissik Street’s failure to include the termination of the operating lease as an unfair or unreasonable contractual practice in its request to the Controller, had the effect that such relief could not be considered by the arbitrator. Engen further argued that the High Court had incorrectly interpreted Business Zone CC as authority for the proposition that a referral to arbitration in terms of section 12B of the PPA automatically suspended pending eviction proceedings.
Rissik Street argued on appeal that they had the right to sell the business upon receipt of Engen’s notice of termination of the operating lease. Additionally, they submitted that despite the termination of the operating lease, they were entitled to remain in occupation of the premises and to continue trade, in order to allow them to sell the business as a going concern. Rissik Street submitted that Engen had unreasonably withheld its consent to proposals for the sale of their business, and Engen’s conduct had frustrated their right to sell the business.
The Supreme Court of Appeal upheld the appeal and found that Rissik Street’s failure to submit the termination of the operating lease, had been fatal to its application. The arbitrator was thus not at liberty to permit Rissik Street’s continued occupation of the premises, and Rissik Street had no legal basis to remain in occupation of the premises. Although the Supreme Court of Appeal found that Rissik Street was entitled to reasons for Engen’s refusal to consent to the sale of the business, the Court found that such entitlement did not in turn entitle Rissik Street to remain in occupation of the premises when such had not been asserted in the request for referral to arbitration. Ultimately, the Supreme Court of Appeal concluded that the High Court’s decision to stay eviction proceedings was influenced by incorrect principles, entitling them to interfere with the order. The Supreme Court of Appeal upheld Engen’s appeal and set aside the order of the High Court, replacing it with an order dismissing Rissik Street’s counter-application. Rissik Street was ordered to vacate the premises within 30 days from the date of the order.
Before the Constitutional Court, Rissik Street argued that the Court’s jurisdiction had been engaged, as this matter raised a number of arguable points of law of general public importance which ought to be considered by this Court. On the merits, Rissik Street submitted that the Supreme Court of Appeal had erred in concluding that an arbitrator, acting in terms of section 12B of the PPA, was precluded from considering an extension of the operating lease, or further occupation of the property when such request had not been submitted to the Controller in the request for arbitration. Rissik Street argued that there was no obligation on the aggrieved party to spell out the relief sought. All that was required was the allegation of an unfair or unreasonable contractual practice. Rissik Street also contended that the Supreme Court of Appeal had erred in its failure to have regard to the transformative objectives of section 12B of the PPA in interpreting the powers of the arbitrator in a restrictive manner. Finally, Rissik Street sought to be placed back into a position whereby they occupied the premises, which would allow them to sell the business as a going concern.
Engen argued that the Supreme Court of Appeal was correct in its conclusion that the failure by Rissik Street to identify non-renewal or extension of the operating lease as an unfair or unreasonable contractual practice was fatal to their attempts to resist the eviction. They asserted that as the issue had not been expressly raised, it fell beyond the ambit of what could be decided by the arbitrator. Additionally, Engen submitted that having failed to sell the business in the 12-month period prior to termination of the operating lease, Rissik Street ceased to have a claim for the extended occupation of the premises for the purpose of further attempting to sell the business.
The following substantive issues arose in this case. Firstly, does the arbitrator have the remedial power in terms of section 12B(4) of the PPA to authorise the continued occupation of the premises by the applicants, pending the correction of a possible unfair or unreasonable contractual practice? Secondly, must a party submitting a request for referral to arbitration include in terms of section 12B of the PPA, the nature of the relief that may be ultimately sought? Thirdly, can a court grant a stay of eviction proceedings pending the determination of arbitration under section 12B of the PPA?
The matter was heard on 4 August 2022. In a unanimous decision penned by Kollapen J, the Court found that its constitutional jurisdiction was engaged and there was basis to grant leave to appeal, as the issues before it raised arguable points of law of general public importance, which stood to be considered by this Court. Additionally, as the issues raised were deemed novel in the context of the evolution of section 12B of the PPA, the interests of justice were found to warrant a determinative pronouncement in order to bring clarity on practices within the retail fuel industry.
On the merits, the Court concluded that section 6(1) of the Arbitration Act pertaining to applications to stay legal proceedings, was not applicable as the provision contemplated and applied to situations where parties had agreed to refer the dispute regarding eviction to arbitration. The court found that arbitration under section 12B did not arise from an agreement between the parties but was rendered obligatory by statute. Additionally, the subject matter of the High Court proceedings and the arbitration proceedings, were different, although tangentially related.
The Court found that continued occupation of the premises may be significant in the scheme of any corrective award that may arise in terms of section 12B. The Court found that, were Rissik Street to be evicted, they would be unable to sell their business and Engen would be at liberty to acquire a new tenant. This would mean that Rissik Street has lost their right to recoup the entrenched value in the business, built up over more than 20 years, and that this would be an inequitable consequence contrary to the transformative objectives of the PPA. Such a situation would run counter to the PPA’s objectives to bring about change in power relations in the fuel industry.
The Court held that the reasonableness and fairness of Engen’s refusal to grant consent for the sale of the business, could not be established by an arbitrator in the absence of reasons for such refusal. Whilst the Court did not make a factual finding on whether the refusal was unreasonable in this case, the possibility of a finding by an arbitrator that refusal constituted an unfair or unreasonable contractual practice, or that Engen had frustrated Rissik Street’s efforts, could not be ruled out
On the second substantive issue, the Court held that section 12B of the PPA did not require an aggrieved party to specify the relief sought at the time of requests for referral to arbitration. This follows from the fact that the relief to be granted is a matter for the arbitrator to determine, and as such, the obligation to spell out such relief does not rest on the aggrieved parties. The Court held that Section 12B vests wide remedial powers in the arbitrator. While not pronouncing on the factual intricacies of this particular case, the Court found that it was a reasonable possibility that an arbitrator, having found that there had been an unfair or unreasonable contractual practice, would in turn find that the corrective award necessary would warrant the continued occupation of the premises by Rissik Street in order to allow them to sell the business. This discretionary power vesting in an arbitrator, was found to be consistent with the transformative objects of the PPA to address inequalities in the fuel industry.
On the third substantive issue, the Court, relied on section 173 of the Constitution together with the case of Mokone, to conclude that High Courts possess inherent jurisdiction to stay eviction proceedings pending the finalisation of associated proceedings, where the interests of justice so require.
Finally, on the delay in approval of the referral for arbitration, the Court concluded that the turnaround time between the submission of a request for arbitration and a decision on that request ought to be efficient in order to realise the objectives of expediency occasioned by the arbitral mechanism. The delay of the Controller in this case was found to have undermined the purpose of the arbitral mechanism introduced by section 12B.
Accordingly, the appeal was upheld and the respondent was ordered to pay the costs of the appeal including the costs of two counsel.
The Full judgment here
