IN THE CONSTITUTIONAL COURT OF SOUTH AFRICA
Case No: CCT 196/21 In the matter between:
RISSIK STREET ONE STOP CC First Applicant
WILLEM JOHANNES KNOESEN Second Applicant
and
ENGEN PETROLEUM LIMITED Respondent
APPLICANTS’ WRITTEN SUBMISSIONS
CONTENTS
OVERVIEW ... 3
REQUIREMENTS FOR LEAVE TO APPEAL ... 7
Constitutional matters and arguable points of law ... 7
Interests of justice ... 10
BACKGROUND ... 11
Contractual provisions ... 11
Pertinent facts ... 14
JUDGMENTS OF THE COURTS BELOW ... 19
High Court ... 19
Supreme Court of Appeal ... 21
ENGEN’S EVICTION OUGHT TO BE STAYED PENDING THE FINALISATION OF THE ARBITRATION ... 25
The Supreme Court of Appeal’s flawed propositions ... 25
Factors in favour of staying the eviction ... 34
RELIEF SOUGHT ... 41
AUTHORITIES ... 42
OVERVIEW
1. In what circumstances should a Court order the stay of eviction proceedings, where a retailer of petroleum products has referred allegations of unfair and / or unreasonable contractual practices committed by the wholesaler to a commercial arbitration in terms of section 12B of the Petroleum Products Act, 120 of 1977 (the “PPA”)?
2. This issue has arisen for determination by this Court in two recent cases:
Crompton Street Motors CC v Bright Idea Projects 66 (Pty) Ltd (“Crompton”) and Former Way Trade and Invest (Pty) Limited v Bright Idea Projects 66 (Pty) Limited (“Former Way”).1 In both those cases, this Court declined to interfere with the High Court’s decisions not to stay the eviction proceedings.
3. In this application for leave to appeal, the applicants (collectively “Rissik”),2 a retailer of petroleum products, successfully sought a stay of eviction proceedings before the High Court brought by the respondent (“Engen”).3 The High Court granted the stay in light of the facts, which differ materially from those in Crompton and Former Way.
3.1 Those cases primarily concerned factual questions as to whether the lease/franchise agreements in question had been renewed and also
1 Crompton Street Motors CC v Bright Idea Projects 66 (Pty) Ltd 2022 (1) SA 317 (CC) and Former Way Trade and Invest (Pty) Limited v Bright Idea Projects 66 (Pty) Limited 2021 (12) BCLR 1388 (CC).
2 Where necessary we refer to the first and second applicants individually.
3 High Court judgment record vol 3 pp 187ff.
whether an arbitrator could reinstate a lapsed agreement in such circumstances.
3.2 This matter, however, concerns Rissik’s contractual entitlement to sell its service station business, arising from the contract with Engen. Rissik maintains that: (a) Engen unfairly frustrated that right; (b) the remedial award necessary to remedy that unfair contractual practice is one that enables Rissik to exercise its right to sell its business, which requires it to remain in occupation to enable it to do so; and (c) the eviction proceedings were properly stayed in those circumstances by the High Court.
4. Engen successfully challenged the High Court’s decision on appeal to the Supreme Court of Appeal (the “SCA”).
5. While finding (correctly it is submitted) that Engen had unreasonably frustrated Rissik’s attempt to sell the business – by unreasonably refusing to provide reasons for withholding its consent to the sale of the business to proposed purchasers (which in turn frustrated Rissik’s ability to submit further offers that met Engen’s requirements)4 – the SCA held that Rissik had not established grounds for staying the eviction proceedings.
6. The SCA refused to stay the eviction proceedings pending the outcome of the section 12B arbitration principally because Rissik Street had not in its request for arbitration explicitly challenged the termination of the operating lease or
4
sought the right to continue to occupy the premises.5 Therefore, according to the SCA, Engen’s frustration of the sale of the business could not give Rissik a right to continue to occupy the premises “when such right was not sought in the request for referral to arbitration.”
7. The SCA, however, misdirected itself in fundamental ways. It approached the matter with a blinkered view of Rissik’s referral, and adopted an unduly narrow analytical framework that is inconsistent with the transformative purposes of the PPA.
7.1 Having accepted that Engen’s refusal to provide reasons for declining to consent to the sale was unreasonable, the SCA should have considered that if the arbitrator were to find that Engen had frustrated Rissik’s right to attempt to sell the business (which is guaranteed by the operating lease) and that such conduct was unfair or unreasonable (which is a finding an arbitrator would likely make given the SCA’s conclusions), the obvious corrective award required by section 12B would be one that places Rissik in a position properly to exercise that right.
7.2 To exercise the right, Rissik requires an operational business to sell, which would in turn require its continued occupation of the leased premises until such corrective remedy has been given effect to.
7.3 Such relief – of continued occupation – is therefore implicit in Rissik’s referral of the Engen’s unreasonable practices to arbitration in terms of
5 SCA judgment paras [32]-[36], record vol 3 pp 221-223.
section 12B. That is because, if Rissik no longer has occupation of the premises, it will have nothing to sell.
7.4 The SCA also confused (a) the matter referred to arbitration by the Controller for Petroleum Products (the “Controller”) pursuant to a request (i.e. the unfair or unreasonably practice), with (b) the issue of what awards may be granted by an arbitrator to correct such practice. An award of continued occupation is, in Rissik’s submission, necessary to correct Engen’s unreasonable conduct in this matter.
7.5 Put simply, the SCA conflated what may be referred to arbitration (the unreasonable or unfair contractual practice), with what may be awarded to correct what has been referred.
7.6 The SCA’s judgment results in Rissik being unable to seek an effective remedy to correct the unreasonable practice which has been referred to arbitration, and in doing so undermines the very purpose of the equitable regime established by the PPA.
8. Accordingly, Rissik asks that the SCA’s decision be overturned and that an order be issued staying the eviction proceedings pending the outcome of the arbitration in terms of section 12B of the PPA.
9. In these written submissions, we first explain why the issues raised in the application fall within this Court’s jurisdiction and why leave to appeal should be granted. Thereafter, we set out the salient factual background to the arbitration proceedings and then summarise the reasoning of the High Court and SCA. Finally, we explain why the SCA erred in holding that Rissik had not
made out a case for the stay of the eviction proceedings and why such relief ought to be granted in this case.
REQUIREMENTS FOR LEAVE TO APPEAL
Constitutional matters and arguable points of law
10. This application raises both constitutional matters and arguable points of law of general public importance which ought to be considered by this Court as contemplated by section 167(3)(b) of the Constitution.
11. In Crompton and Former Way, this Court held that the proper extent of the High Court’s jurisdiction to refuse (and it is submitted also grant) a stay of eviction where section 12B is implicated raises constitutional issues, especially where a challenge to a court’s jurisdiction is “paired with the purported limitation of the section 34 right to access an appropriate or ‘specialist’ tribunal or forum”.6
12. While those cases (particularly Crompton) have considered this issue against the backdrop of factual issues concerning whether parties had agreed to the renewal of lease agreements, they did not address the specific issues raised by the current application – namely, the extent of the High Court’s powers to stay an eviction where the issue referred to arbitration concerns a wholesaler’s unreasonable frustration of the retailer’s contractual right to sell the business and the specific remedies required to remedy that practice.
6 Crompton at para 20, Former Way at para 35.
13. In other words, this application raises different issues concerning the High Court’s jurisdiction to stay eviction proceedings in the context of section 12B of the PPA, which are constitutional issues.
14. We submit that the case raises the following additional constitutional matters:
14.1 Section 12B was introduced into the PPA in order to promote the transformation of the South African petroleum and liquid fuels industry;7
14.2 The Petroleum Products Amendment Act, 58 of 2003 specifically introduced provisions into the PPA to “promote the advancement of historically disadvantaged South Africans” (for example, section 2C of the PPA, introduced by section 3 of the Amendment Act);
14.3 The transformational aspects of the PPA thus implicate the right to equality guaranteed by section 9 of the Constitution, and, in particular, the remedial measures contemplated by section 9(2) of the Constitution.
The powers of an arbitrator to grant corrective relief should accordingly be interpreted in light of this constitutional requirement as a tool to advance substantive equality within the fuel industry;8
14.4 The SCA’s analysis of section 12B of the PPA constricts the relief that may be awarded by the arbitrator and limits the means by which the transformational objectives of the Act may be achieved.
7 Business Zone 1010 CC t/a Emmarentia Convenience Centre v Engen Petroleum Limited and Others 2017 (6) BCLR 773 (CC) at para 47.
8 Minister of Finance v Van Heerden 2004 (6) SA 121 (CC) at paras 27 and 31; Beadica 231 CC
15. The arguable points of law of general public importance are the following:
15.1 Whether, in order to establish grounds for a stay of eviction proceedings before the High Court, retailers must in their request for a referral to arbitration explicitly seek relief to continue to occupy the premises, or whether that relief may be inferred or implied from the terms of the request (or, alternatively, be left to be sought in the pleadings in the arbitration);
15.2 Whether the High Court, in deciding an application for the stay of eviction proceedings pending the finalisation of a section 12B arbitration, is constrained to the relief set out in a party’s request for arbitration, or whether the court may have regard to the fact that the parties may subsequently formulate their relief in pleadings in the arbitration to give effect to the referral;
15.3 Whether arbitrators under section 12B of the PPA have the power to direct that a retailer be permitted to continue to occupy their retail premises in order to enable them to sell their business even though the lease or franchise agreement has otherwise expired; and
15.4 Assuming that arbitrators have such power, whether the High Court may stay eviction proceedings pending the outcome of arbitrations in which such disputes are to be ventilated.
16. These points are indeed arguable.9 While the SCA took a narrow view as to the formulation of the referral – and the factors a court may take into consideration in determining an application to stay evictions proceedings – the High Court embraced the opposite view:10
“In terms of section 128 (4) (a) an arbitrator has the powers to make such award as he or she deems necessary to correct such practice. The terms of reference of the arbitration has not yet been determined. The respondents are still at liberty to seek reinstatement of the operating licence and the arbitrator will be empowered to order that. … In the case at hand even though the notice period has expired on the 31st October 2018, that does not preclude the arbitrator to make an award as he/she deems necessary to correct such alleged unfair and/or unreasonable contractual practice, which may include reinstatement of the operating lease agreement.”
17. While the High Court found that Rissik was at liberty to seek reinstatement of the operating lease in the arbitration, it is submitted that the relief need not be formulated in such broad terms. Rissik merely requires continued occupation the premises and a temporary extension of the arrangement under which fuel is supplied to it to enable it to sell the business. The point for present purposes, however, is that regardless of the breadth of the relief it may seek, that relief remains to be formulated in the arbitration.
Interests of justice
18. Rissik’s prospects of success are good, as appears from our submissions.11
9 Paulsen and Another v Slip Knot Investments 777 (Pty) Limited 2015 (3) SA 479 (CC) at para 23.
10 High Court judgment para [21], record vol 3 pp 195-196.
19. Additionally, there is a strong public interest in the determination of what remedies are available to a retailer who has referred an alleged unreasonable and / or unfair practice of a wholesaler to arbitration under section 12B of the PPA, and what relief a retailer may seek in the High Court in order to secure those remedies in the arbitration.
20. For these reasons, we submit that granting leave to appeal is in the interests of justice.
BACKGROUND
Contractual provisions
21. Rissik has occupied the relevant premises in Polokwane since 1998.12 Engen rents the premises from its owner pursuant to a notarial lease and has the right to sub-let the premises.13 The agreement between the parties has been renewed from time to time.
22. The sub-lease between Rissik and Engen that was in place at the time of the dispute – the Agreement of Lease and Operation (the “operating lease”) – was concluded by the parties on 30 March 2015. It commenced on 1 April 2015 and provided for its termination on 30 June 2018.14 Eight schedules attached to the operating lease form part of the agreement.15
12 Rissik AA para 8, record vol 2 p 108.
13 Engen FA paras 7-8, record vol 1 pp 7-8.
14 See FA5.2, record vol 1 p 37.
15 The relevant annexures are attached as FA5.2 to FA5.4 to Engen FA, record vol 1 pp 25-93.
23. The operating lease provides for a right for Rissik to attempt to sell the service station business.
24. Clause 22 of Schedule 2 recognises Rissik’s right to sell the service station business at any time during the currency of the agreement.16 The procedure for the sale is regulated by Schedule 3. Clause 1.3 of that schedule provides:17
“Should [Rissik] wish to sell the Business, he/she/it may suggest a proposed purchaser/successor to [Engen], and [Engen] will generally consider that proposed successor as a candidate for a new operating lease of the Premises, subject to the provisions of this Schedule 3. If the prospective successor … meets all of [Engen’s] selection criteria for a Dealer at the Premises, then in the absence of any reason to the contrary, [Engen] will generally be willing to prefer that prospective successor above others wishing to operate the Business at the Premises.”
25. Clause 1.6 of Schedule 3 further stipulates that it has:
“become [Engen’s] policy and [Engen] has now agreed that the price that an incoming Dealer is willing to pay for access to the premises concerned may accrue to the outgoing Dealer [i.e. Rissik] as a sale of the business rather than to [Engen] as consideration for the conclusion of the operating lease.
Accordingly, [Engen] has agreed that the Dealer has an ‘entrenched value’ in the Business and is entitled to realise such entrenched value in the event of the Dealer wishing to sell the Business or being required to sell the Business pursuant to this Agreement.”18
16 FA5.3, record vol 1 p 59.
17 FA5.4, record vol 1 p 86.
18
26. Clause 44.2 of Schedule 2 to the operating lease confers upon Rissik the right to attempt to sell the business upon termination of the agreement. It provides (in relevant part) as follows:19
“If [Engen] intends or elects for any reason not offering [Rissik] a further opportunity to lease the Premises from the Termination Date of this Agreement, [Engen] shell endeavour to advise [Rissik] in writing at least twelve months prior to the Termination Date of this Agreement. If such advice is not provided at least twelve months prior to the Termination Date of this Agreement, [Engen]
may still provide such advice et any time prior to the Termination Date of this Agreement provided that [Rissik’s] tenure at the Premises will then be extended for a period beyond the Termination Dale of this Agreement to ensure that [Rissik] will have received at least twelve months’ notice that [Engen] intends or has elected not offering [Rissik] a further opportunity to lease the Premises from the Termination Date of this Agreement extended as aforesaid. Any extension as aforesaid will be on the terms and conditions of the Company’s operating leases at such time. …”
27. Importantly, clause 44.2 then goes on to provide as follows:20
“Should [Engen] advise [Rissik] that it does not intend renewing the lease between the parties, [Rissik] shall be entitled to attempt to sell the Business during the remaining period of the lease, and [Engen] shall not unreasonably withhold Its consent to such sale. Should [Rissik] not have sold the Business prior to the expiry of the lease, the provisions of sub- clause 44.1 of this schedule 2 shall apply and [Rissik] shall not have the right to any compensation in respect of his loss of the Business.” (emphasis added)
28. Clause 44.1 of Schedule 2 (mentioned in the final sentence of clause 44.2 quoted above) provides, that Engen has the right, on premature termination, to appoint a new Dealer, and that Rissik is entitled to negotiate with such new
19 FA5.3, record vol 1 p 83.
20 FA5.3, record vol 1 p 83.
Dealer in respect of any takeover of stock and equipment belonging to Rissik on the premises, alternatively that Rissik has the right to remove stock and equipment on the premises belonging to it.21
29. In sum, these contractual provisions entitle Rissik to dispose of its service station business notwithstanding the termination of the operating lease and for Rissik to receive, as part of the purchase consideration, the amount the purchaser (as the new dealer) would otherwise pay to Engen for “access to the premises”. In this manner, Rissik is entitled to realise its “entrenched value” in the business.
30. If Rissik were to be evicted from the premises without such a sale being concluded, this entitlement would be obliterated. Rissik would be precluded from receiving consideration for “access to the premises” and realising the entrenched value of the business.
Pertinent facts
31. When the operating lease was set to expire, Rissik and Engen endeavoured to negotiate its extension, which failed. In particular, Rissik would not acquiesce to Engen’s demand for an upfront payment of R3 million for “goodwill” as a condition of renewal.22 This was because Rissik could not afford to pay that sum, and it was something that Engen had not previously demanded.23
21 FA5.3, record vol 1 p 83.
22 Rissik AA para 14.4, record vol 2 p 110.
23
32. Engen had paid R3 million to the property owner to secure the renewal of the notarial deed of lease in respect of the premises. The High Court and the SCA both accepted that Engen effectively intended to recoup this R3 million from Rissik by making the demand.24
33. On 2 October 2017, Engen gave Rissik notice that it did not intend granting Rissik a further opportunity to lease the premises at the expiry of the lease.25 This letter triggered the one-year period in which Rissik was entitled to attempt to sell the service station.26
34. Rissik attempted to sell its service station business and introduced prospective purchasers to Engen.
34.1 Rissik introduced the first prospective purchaser in May 2018.27 While the SCA held that Engen refused its consent to the sale because the purchaser did not satisfy Engen’s selection criteria (as contemplated by clause 44.2 of Schedule 2 to the operating lease),28 such reason did not appear from Engen’s papers (but rather was a submission made before the SCA). In its founding papers, Engen had stated that it was not amenable to concluding an agreement with the first potential purchaser and that the parties could not reach common ground on the sale,29 and
24 SCA judgment para [10], record vol 3 p 213; HC judgment para [3], record vol 3 p 188.
25 FA6, record vol 1 p 96.
26 In paragraph 5 of the letter (FA6, record vol 1 p 95) Engen recorded: “As contemplated by clause 44.2 of Schedule 2 to the Operating Lease, [Rissik’s] tenure at the Premises shall accordingly come to an end on 31 October 2018…”
27 Engen RA/AA para 22.1, record vol 2 p 162.
28 SCA judgment para [13], record vol 3 pp 214-215.
29 Engen FA paras 27-28, record vol 1 p 21.
in reply, that the documents Rissik had provided did not comply with the operating lease.30
34.2 Rissik introduced its second prospective purchaser in January 2019, acting on Engen’s invitation to do so.31 The prospective purchaser was willing to pay both the purchase price for the shares in the first applicant, as well as the R3 million premium demanded by Engen.32 Engen had previously indicated that it would approve the sale, if Rissik found a buyer who was willing to pay the lease premium on top of the purchase price.33 Engen also did not consent to this proposed sale. It also gave no reasons for its refusal to consent, contending that there was no obligation on it to provide reasons in terms of the operating lease.34
35. Rissik submitted a request for a referral of unreasonable and / or unfair contractual practice to arbitration to the Controller for Petroleum Products (the
“Controller”) in July 2018 (three months before the expiry of the one year sale period) in terms of section 12B of the PPA.35
35.1 The request indicates that the relationship between the parties had broken down irretrievably and emphasised that Rissik seeks to sell the
30 Engen RA/AA para 22.1, record vol 2 p 162.
31 Rissik AA para 5.7, record vol 2 pp 106-107– not disputed in reply, see RA para 28, record vol 2 pp 164-165.
32 AA3 para 3, record vol 2 p 145.
33 Rissik AA para 22, record vol 2 p 112 – not disputed in reply, see RA paras 29-31, record vol 2 pp 165-166.
34 Engen RA/AA para 23, record vol 2 p 163.
35
service station business and “be afforded the opportunity to do so without being frustrated by Engen at every turn.”36
35.2 Engen’s failure to provide reasons for refusing the proposed sale of the service station business was at the heart of Rissik’s request.
35.3 The request explained:37
“If I do not know the reason(s) why a particular buyer(s) has not been authorised by Engen, then I will be unable to remedy that defect when sourcing further Interested buyers. This wastes not only my time but also that of Interested parties.”
35.4 It also dealt with the fact that if no reasons are provided, Rissik would be unable to “assess whether [Engen’s] consent has been unreasonably withheld in terms of clause 44.2.”38
35.5 Engen thereby frustrated Rissik’s exercise of its sale rights under clause 44.2 of schedule 2 of the operating lease.
35.6 Engen’s conduct was obstructive. Rissik contended that once Engen realised that Rissik was not willing to pay R3 million for the renewal of the agreement, it exercised its “right to not renew the Operating Lease and … sought to punish [Rissik] by depriving [it] of [the] contractual right to sell the business.”39
36 RA1 para 4.1, record vol 2 p 178.
37 RA1 para 2.15, record vol 2 p 176.
38 RA1 para 2.15, record vol 2 p 176.
39 RA1 para 2.20, record vol 2 p 177.
35.7 Engen would be able sell the business again once the operating lease came to an end (and realise the proceeds thereof), whereas the second applicant (the owner of the first applicant) would be “left with nothing”.40
35.8 This is particularly inequitable as Rissik had contributed its own efforts and resources toward the success of the business and was contractually entitled to realise the “entrenched value” it had built up.
35.9 If Rissik could sell the business it could recoup some of its investment, whereas once the agreement came to an end without any such sale, it would be forced to walk away.
36. Upon the expiration of the operating lease in October 2018, Rissik did not vacate the premises. In March 2019, Engen instituted eviction proceedings in the High Court claiming that Rissik’s continued occupation was unlawful as the lease had expired.41 Rissik opposed the application and brought a counter- application for: (a) the stay of the eviction proceedings, pending a decision by the Controller in relation to the referral and/or pursuant to section 6 of the Arbitration Act 42 of 1965; and (b) an interdict restraining Engen from taking steps that would adversely affect Rissik’s operations pending the final outcome of the section 12B process.42 (Rissik sought additional relief under the Consumer Protection Act, 68 of 2008,43 which is not relevant to the issues before this Court for determination).
40 RA1 para 2.20, record vol 2 p 177.
41 Engen NoM, record vol 1 p 1.
42 Rissik AA paras 49.1-49.3, record vol 2 pp 127-128.
43
37. The Controller referred the matter to arbitration in July 2019.44 In his referral letter, the Controller stated as follows:45
“5. The request to refer the matter to arbitration is approved for the arbitrator to test, inter alia, allegations made by the [Rissik] that Engen:
“5.1 By requesting an amount of R3 million for ‘goodwill’ in order to renew their lease agreement. [Rissik] 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 the Franchise would have been due to the action of [Rissik]
and its employees not Engen.
5.2 By not engaging with [Rissik] in trying to resolve the matter and serving [Rissik] with a notice of non-renewal in terms of 44.2 Schedule 2 of the Operation Lease no reasons where provided.
5.3 By refusing to authorise sale to either potential purchaser provided by [Rissik] with no reasons thereof [sic]. As reasons for refusal where not provided [Rissik] is unable to remedy that defect or sourcing further interested buyers.”
JUDGMENTS OF THE COURTS BELOW
High Court
38. The High Court refused to evict Rissik from the premises, and granted the counter-application staying the eviction proceedings and interdicting Engen from taking steps that would adversely affect Rissik’s operations.46 The Court reasoned that even though the lease had expired through the effluxion of time, this did not bar the stay of the eviction proceedings.
44 The referral letter is at record vol 3 pp 226-228.
45 Referral para 5, record vol 3 p 227
46 HC judgment para [23], record vol 3 p 196.
39. The High Court:
39.1 found that while “[u]nder normal circumstances” Rissik would be required to vacate the premises on expiry of the lease, there was at that stage a pending live dispute in relation to Rissik’s section 12B referral;47
39.2 rejected Engen’s argument that granting an eviction would not impact upon the arbitrator’s powers, finding that it would “defeat the purpose and spirit of section 12B”;48 and
39.3 held that:
39.3.1 the arbitrator has wide powers “to make such award as he or she deems necessary to correct such practice”;
39.3.2 the terms of reference of the arbitration have yet to be finalised;
and
39.3.3 importantly, that Rissik was “still at liberty to seek reinstatement of the operating licence and the arbitrator will be empowered to order that.”49
40. Accordingly, the High Court found that it was in the interests of justice to stay the eviction proceedings pending the finalisation of the arbitration.50
47 HC judgment para [18], record vol 2 p 194.
48 HC judgment paras [19]-[20], record vol 2 p 195.
49 HC judgment para [21], record vol 2 p 195.
50
41. We note that in addition to these facts, the High Court also stated that this Court had held in Business Zone that the “arbitration procedure suspend[s] the institution of court litigation.”51
41.1 Rissik accepts that there is no automatic suspension or stay of eviction proceedings when a referral is made in terms of section 12B of the PPA.
It had acknowledged that position even before this Court handed down its decision in Crompton, in which it held that section 12B does not automatically stay High Court proceedings, but that the court has a discretion to grant or refuse a request for a stay pending the determination of the section 12B referral.52
41.2 This aspect of the High Court’s reason, respectfully, was not an essential component of its ultimate conclusion.
41.3 The question ultimately raised in these proceedings is whether in the circumstances of the case, the issues in the arbitration and in the eviction proceedings overlap and whether an eviction order will impact on the relief available in the arbitration.
Supreme Court of Appeal
42. The SCA overturned the High Court’s order.
43. It held first that Rissik’s case had a “fundamental problem”, namely that Rissik did not in its request for a referral to arbitration “contend that the non-extension
51 HC judgment para [20], record vol 2 p 194.
52 Crompton at para 43. See also Former Way at para 39.
of the lease agreement constituted an unfair contractual practice”, and that as a result “when the Controller issued a notice of referral, he did not include the non-extension of the agreement as one of the issues to be determined by the arbitrator to be appointed.”53
44. Second, the SCA focused narrowly on the alleged unreasonable conduct of which Rissik had complained namely, Engen’s failure to consider the offers to purchase that had been presented to it, and its refusal to provide reasons for refusing its consent to the sales. It regarded the letter of referral as having defined the issues that had been referred to arbitration and the remedies available to Rissik.54 Having adopted a blinkered view of the referral, it held that:55
“[t]hese complaints, upon referral to the arbitrator, vest no remedial power in the arbitrator to permit Rissik Street Engen [the first applicant] or Mr Knoesen [the second applicant] to remain in occupation, pending the sale of the business.”
45. In making that finding, we respectfully submit, the SCA lost sight of the wide- ranging relief that may be granted under section 12B of the PPA.
46. Third, as to the relief that may generally be sought from an arbitrator in terms of section 12B, the SCA held that “the arbitrator may not in the exercise of his or her powers, impose a remedial award, which may amount to reinstatement of the lease agreement for the simple reason that such remedy is not prescribed under the Act,” while in the same paragraph recognising that “s 12B(4) imposes
53 SCA judgment para [32], record vol 3 p 221.
54 SCA judgment para [33], record vol 3 p 222.
55
the equitable standard and that the arbitrator may, acting under such standard, override the terms of the contract of the parties to ensure that fairness and reasonableness prevail.”56
47. Fourth, even though it found that Engen was obliged to provide reasons for its refusal to consent to the sale of the service station business (and that Engen had unjustifiably refused to do so), the SCA held that “there is no reason why Engen's failure to consider and consent to the sale would give rise to a right that would allow Rissik Street Engen and Mr Knoesen to continue to occupy the premises when such right was not sought in the request for referral to arbitration.”57
48. Fifth, as a result the SCA concluded that it was “not open” for Rissik to “rely on the right to sell the business as a form of security against eviction.”58
49. Sixth, the SCA found that the High Court had misdirected itself in the exercise of its discretion by relying on the proposition (which we have already addressed above) that the section 12B arbitration procedure suspends or stays court proceedings. On this basis, the SCA interfered with the High Court’s exercise of its discretion.59
56 SCA judgment para [34], record vol 3 p 222.
57 SCA judgment para [36], record vol 3 p 223.
58 SCA judgment para [37], record vol 3 p 223.
59 SCA judgment paras [38]-[39], record vol 3 p 223.
50. As noted above, the SCA rejected Engen’s contention that it need not provide reasons for refusing to consent to a sale. The SCA’s full reasoning is as follows:60
“Clause 44.2 imposed an obligation on Engen to notify Mr Knoesen [the second applicant] and Rissik Street Engen [the first applicant] a year before the expiry of the term of the lease if it did not intend to renew the lease. This was necessary because in terms of the agreement Mr Knoesen had a right to sell the service station business (subject to Engen giving consent which it could not unreasonably withhold) within the remaining period. It follows therefore that Engen was obliged in terms of clause 44.2 to furnish Mr Knoesen and Rissik Street Engen with its reasons as to why it rejected the offer to purchase of the first prospective purchaser which it received before the expiry of the lease. Mr Knoesen was entitled to know why the sale was rejected to enable him to submit offers, which would have met Engen’s requirements and to determine whether Engen's rejection was based on valid grounds.”
51. In doing so, the SCA rejected Engen’s reliance on clause 10.1 of Schedule 3 to the operating lease, which provides as follows:61
“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 [Rissik] with its reason’s [sic] for any such exercise.”
52. Engen could not rely on clause 10.1 of Schedule 3 because clause 44.2 is contained in Schedule 2 to the operating lease. Consequently, when Engen refused to provide consent under clause 44.2, it was not exercising a discretion
“contemplated by the provisions of this Schedule 3” within the meaning of clause 10.1 of Schedule 3.
60 SCA judgment para [35], record vol 3 p 222.
61
53. In the next section we build on the reasons why the SCA erred and explain why Engen’s eviction proceedings should be stayed pending the determination of the arbitration under section 12B.
ENGEN’S EVICTION OUGHT TO BE STAYED PENDING THE FINALISATION OF THE ARBITRATION
Supreme Court of Appeal’s flawed propositions
54. The SCA’s reasoning in support of its conclusion that the stay should not be granted, rests on the following two legal propositions:
54.1 First, that the arbitrator was precluded from determining the issue of the non-extension of the operating lease, as it had not been dealt with in Rissik’s request and the Controller’s referral of the matter to arbitration in terms of section 12B;
54.2 Second, that the reinstatement of the operating lease is not a competent remedy under section 12B of the PPA.
55. We respectfully submit that these propositions are flawed and at odds with this Court’s jurisprudence.
56. Writing unanimously for this Court, Mhlantla J held the following about the nature of section 12B in Business Zone and Crompton Street:62
56.1 First, section 12B(4) grants the arbitrator “wide remedial powers”.63 The arbitrator can make any award that he or she “deem necessary” to
“correct” an unfair or unreasonable practice.
56.2 Second, the “real significance of section 12B does not lie in the Controller’s power to compel the parties to refer their dispute to arbitration, but in the equitable standard it imposes” which “overrides the terms of their contract to ensure that fairness and reasonableness prevail.”64 Mhlantla J emphasised that this equitable standard prevails in all contracts whether they are subject to arbitration under section 12B or ordinary court litigation.65
56.3 Third, a central purpose of the PPA (after the amendments which introduced section 12B) is to promote the transformation of the petroleum industry, which includes addressing the issue of unequal bargaining power between participants in the industry.66
62 Crompton Street at para 45.
63 Crompton Street supra.
64 Business Zone at para 48.
65 Business Zone at para 52.
57. In Crompton Street, the Court emphasised that section 12B, including the powers of the arbitrator, must be interpreted in light of this purpose:67
“In addition to considering the larger context of the petroleum industry and the purpose of the Act when considering a stay application, courts ought to guard against treating these disputes as purely contractual. They must bear in mind that the Legislature intended that a fairness standard be imposed on contractual relationships between retailers and wholesalers in the petroleum industry. The equitable standard of fairness and reasonableness prevails in all petroleum contracts. This fairness standard does not exist in all commercial contracts and, therefore, a High Court cannot treat those disputes as regular contractual disputes when they are considering whether to stay the proceedings. To do so would be to ignore the Legislature’s transformative goals in the petroleum industry in light of the unequal bargaining power between retailers and wholesalers.”
58. The SCA’s first and second propositions are premised on a blinkered view of Rissik’s request and the referral, as well as an unduly narrow conception of the nature of arbitration proceedings contemplated in section 12B, the relief the parties may seek in their pleadings, and the relief that arbitrators may grant to correct what has been referred to them.
59. In relation to the Rissik request and the referral, we have already explained that the right that Rissik asserts to continue occupying the premises is inherent in the request.
59.1 Rissik alleged that Engen had unreasonably frustrated its ability to exercise its entitlement to sell the business, by refusing to consent to proposed purchasers and by refusing to give reasons for doing so.
67 Crompton Street at para 62.
59.2 The relief Rissik seeks is that it be put in a position to be able to exercise its entitlement to sell its service station business.
59.3 If Rissik does not continue to occupy the premises, it will not have a going concern and it will not be in a position to sell the business.
60. In its pleadings in the arbitration, Rissik would be entitled to set out and seek the remedies that would address the alleged unreasonable practice.
60.1 It would be open to Rissik, given the nature of the conduct upon which it relies, to ask for an award entitling it to remain in occupation of the premises pending the unobstructed and unfrustrated exercise of the rights under the operating lease to sell the business.
60.2 That relief is a consequence of the unfair and unreasonable contractual practices which Rissik requested the Controller to refer to arbitration.
61. Nothing in section 12B of the PPA requires a party in its request for arbitration also to address the specific relief that it will seek in the arbitration.
61.1 Subsection (1) empowers the Controller to require a retailer and wholesaler to submit a “matter to arbitration” in light of a “request by a licensed retailer alleging an unfair or unreasonable contractual practice by a licensed wholesaler”. The text of the provision does not require the retailer to set out, in its request, the relief that would be sought before the arbitrator.
61.2 The precise scope of the remedies that may be granted to the parties to the proceedings (beyond the requirement of granting a remedy that
corrects the unfair or unreasonable practice) is not even addressed by the Act.
61.3 While subsections (2) and (3) require the parties to appoint an arbitrator and adopt rules for the arbitration by agreement (or, failing such agreement, for the Controller’s appointment of an arbitrator, who will determine the rules), subsection (4) requires the arbitrator to determine:
61.3.1 “whether the alleged contractual practices concerned are unfair or unreasonable and, if so, … make such award as he or she deems necessary to correct such practice”; and
61.3.2 “whether the allegations giving rise to the arbitration were frivolous or capricious and, if so, … make such award as he or she deems necessary to compensate any party affected by such allegations.”
61.4 There is no textual justification for limiting section 12B in a manner that requires the parties to delineate the relief they seek in their request for arbitration. It requires the parties to allege the unfair or unreasonable practice and for the arbitrator to make the award he or she deems necessary to correct it.
62. The powers of the arbitrator to make an award to correct unfair or unreasonable practices are very wide, as this Court has held.68
62.1 While not an issue this Court needs to decide to resolve the current dispute, in our submission the arbitrator has a discretion (and indeed an obligation) to make an award not specifically sought by a retailer or wholesaler – whether in the request, the referral or in the pleadings – to the extent that it is “necessary to correct [the] practice” referred to the arbitrator by the Controller.
62.2 This power is similar to the superior courts’ power to grant just and equitable relief in constitutional matters in terms of section 172(1)(b) of the Constitution. This Court has explicitly held that the power includes granting relief not explicitly sought by a party in its pleadings:69
“The power to grant a just and equitable order is so wide and flexible that it allows courts to formulate an order that does not follow prayers in the notice of motion or some other pleading. This power enables courts to address the real dispute between the parties by requiring them to take steps aimed at making their conduct to be consistent with the Constitution.”
62.3 Similarly, the arbitrator has the power and obligation under section 12B(4)(a) of the PPA to grant the award she deems “necessary”
to correct unreasonable and unfair contractual practices. It is a power to
68 Crompton Street at para 45.
69 Economic Freedom Fighters and Others v Speaker of the National Assembly and Another 2018
address the dispute between the parties. That might include an award not specifically sought by the parties.
63. Of course, neither the courts’ power to grant just and equitable remedies nor the arbitrator’s power to make an award necessary to correct an unreasonable practice, is unbounded.70
64. In the first place, the arbitrator is bound by the principle of legality and must act rationally.71 The arbitrator is also bound to only consider and correct what was referred to her.
65. So, what Rissik – or any other party who requests an arbitration – would not be entitled to do is ask the arbitrator to deal with allegations of unreasonable and / or unfair contractual practices (a) which it did not request the Controller to refer to arbitration or (b) which the Controller did not actually so refer.
66. In other words, what is referred – and what determines the scope of the arbitrator’s jurisdiction – is not the relief that a party seeks, but rather allegations of unreasonable and unfair contractual practices. If the arbitrator finds that such allegations are justified, she is empowered and obliged to make an award
“necessary” to correct such practices.
67. The arbitrator cannot, however, inquire into allegations of any other contractual practices that were not referred to her. Similarly, a party in the proceedings could not through the pleadings filed, seek to go beyond the scope of the
70 See Corruption Watch NPC and Others v President of the Republic of South Africa and Others;
Nxasana v Corruption Watch NPC and Others 2018 (10) BCLR 1179 (CC) at para 68.
71 See Bright Idea Projects 66 (Pty) Ltd v Former Way Trade and Interest (Pty) Ltd 2018 (6) SA 86 (KZP) at para 27.
alleged contractual practices that were referred by the Controller. It is in those circumstances that an arbitrator would be acting beyond her powers.72 The arbitrator may also not grant relief that extends further than correcting the unfair or unreasonable conduct in question.
68. We respectfully submit this is consistent with the tenor of this Court’s findings in Business Zone where it held that the “the arbitrator’s remedial powers can go no further than correcting the contractual practice in question”73 (cited in paragraph 29 of the SCA’s judgment in this matter74). Section 12B limits what may be corrected – namely unfair or unreasonable practices so referred – and the nature of the relief that may be granted (namely, relief that corrects the practice), but it does not prescribe the scope of the awards which may be granted to achieve the correction of the practices.
69. That addresses the SCA’s first proposition. The SCA with respect conflated the question of what was being referred to arbitration (i.e. allegations of unfair and unreasonable practices) with what the awards an arbitrator may grant to correct those practices.
70. The SCA’s second proposition (that the reinstatement of the operating lease is not a competent remedy under section 12B of the PPA) is also not supported by the text of section 12B(4), nor the purpose of the provision.
72 Cf Hos+Med Medical Aid Scheme v Thebe ya Pelo Healthcare and Others 2008 (2) SA 608 (SCA) at para 30, and Radon Projects (Pty) Ltd v N V Properties (Pty) Ltd and Another 2013 (6) SA 345 (SCA) at para 28, cited by the SCA at para [32] p 221.
73 Business Zone at para 92.
74
70.1 The text in no way limits the arbitrator’s powers in the manner contended for by the SCA. The text of the provision does not provide that the arbitrator has no power to grant an award requiring the reinstatement of an agreement and this Court expressly left that issue open in Crompton and Former Way.
70.2 The transformative purpose of the provision – which seeks to address the power imbalances between retailers and wholesalers in the industry – supports Rissik’s approach: that if necessary to correct an unfair practice, such an award can and must be granted by the arbitrator.
71. It is in any event unnecessary for this Court to determine whether section 12B empowers an arbitrator to reinstate a contract because that is not the relief Rissik seeks in the arbitration. It does not require the reinstatement of the lease (it accepts that the relationship between the parties has broken down), but rather an award that will enable it to exercise its contractual right to sell the business without frustration and, significantly, to obtain the purchase price it would have received had the sale been conducted pursuant to the operating lease.
72. Such an award must necessarily put Rissik in the position in which it would have been had Engen not unreasonably refused to consent to the sales that had been presented to it. That would require Rissik to remain in occupation of the premises. This is the only way the provisions of clause 1.6 of Schedule 3 to the operating lease can be implemented in any meaningful manner. While that may entail the temporary extension of the arrangements contemplated by the operating lease, it does not require the reinstatement of the agreement. Indeed,
when Engen agreed to consider the second prospective purchaser that had been presented to it, the operating lease had already expired. Engen was consequently prepared to entertain a sale of the business in accordance with the provisions of the agreement (and to continue supplying Rissik with fuel) notwithstanding that it regarded the agreement as having expired.
Factors in favour of staying the eviction
73. In Crompton, this Court held that when considering whether to stay proceedings, courts must “seriously consider whether there are ample reasons not to refer the dispute to statutory arbitration in terms of section 12B … in light of the broader legislative scheme”75 Further, that the courts must consider all of the benefits of section 12B and the broader power dynamics of the petroleum industry when weighing up whether to grant a stay.76 These principles were reiterated and endorsed by the Court in Former Way.77
74. It its respectfully submitted that the SCA did not undertake the analysis mandated by this Court. In addition to taking an unduly narrow view of the issues referred to arbitration (and the remedial powers of the arbitrator) and also failing to consider questions of power imbalances between Rissik and Engen and the transformational purposes of the PPA, the SCA did not apply what this Court called the “high threshold” for refusing to stay proceedings in favour of arbitration under section 12B.78
75 Crompton at para 60.
76 Crompton at para 60.
77 Former Way at para 39.
78
75. We draw the Court’s attention to an analogous case, Mokone v Tassos Properties CC,79 which also concerned the lessor’s efforts to exercise its rights under a lease notwithstanding the ostensible termination of the agreement.
75.1 In that matter, this Court (on appeal) granted a stay of eviction proceedings so that the lessee could finalise proceedings in which she sought to enforce her contractual right.
75.2 The applicant (Ms Mokone) as lessee had concluded a lease agreement with the respondent (Tassos) as lessor. The agreement afforded Ms Mokone a right of first refusal / pre-emption if Tassos sought to sell the property during the term of the lease.80
75.3 The parties agreed to a renewal and extension of the lease by making an endorsement in writing on its front page.81
75.4 Before the expiry of the extended period, Tassos had sold the property to a third party, Blue Canyon. Ms Mokone sought an order setting aside the sale and transfer of the property to Blue Canyon and compelling a sale to her – in other words to enforce her right of pre-emption82 (the
“pre-emption proceedings”). She contended that Blue Canyon was aware of her right of pre-emption which would mean the sale was liable to be set aside.
79 Mokone v Tassos Properties CC and Another 2017 (5) SA 456 (CC).
80 Mokone at para 3.
81 Mokone at para 4.
82 Mokone at para 7.
75.5 In the pre-emption proceedings, issues were separated, and the High Court was asked only to determine whether the right of pre-emption was also renewed when the lease agreement was extended. Applying the common law, the High Court held that such term was collateral to the lease, and was therefore not automatically incorporated into the extended lease.83
75.6 While those proceedings were pending, the extended term of the lease came to an end. Blue Canyon (as the substituted lessor) applied for an order in the Magistrate’s Court seeking the applicant’s eviction from the premises, from which she had operated a bottle store for many years84 (“eviction proceedings”).
75.7 While the Magistrate’s Court had stayed the eviction proceedings pending the determination of the pre-emption proceedings, the High Court had overturned the stay.85
75.8 Both matters were heard by this Court.
75.9 In relation to the pre-emption proceedings, Madlanga J overturned the High Court’s decision and held that the collateral terms to a lease were renewed with the lease, unless the parties agreed otherwise.86 The pre-
83 Mokone at para 10.
84 Mokone at para 12.
85 Mokone at para 13.
86
emption proceedings were remitted to the High Court, so that the remaining issues could be determined.87
75.10 That left the issue of the eviction proceedings. In that regard, Madlanga J pointed out that no matter the position under the common law, the superior courts have the inherent power (in section 173) of the Constitution to develop their own processes, including to stay proceedings where that is dictated by the interests of justice.88
75.11 In the circumstances of the case, he pointed out the following:89
“In the litigation pending before the High Court, Ms Mokone has pleaded that the purchaser, Blue Canyon, knew of the existence of the right of pre-emption before it took transfer of the leased premises. If that is indeed so, the purchaser’s ownership obtained upon transfer to it may well be assailable. It seems unjust to require Ms Mokone to be uprooted and her business brought to a halt or destroyed in circumstances where the purchaser might not have been an innocent player when it purchased or took transfer of the leased premises. The interests of justice dictate that the eviction proceedings be held in abeyance pending finalisation of the action in which Ms Mokone is seeking to enforce the right of pre- emption.” (Emphasis added)
75.12 Importantly, Madlanga J also noted that this did not mean that Ms Mokone is not entitled “to remain on the leased premises free of charge.
She has to continue paying rent and Blue Canyon is entitled to enforce
87 Mokone at para 73.
88 Mokone at paras 67-69.
89 Mokone at para 70.
its rights in this regard.”90 This was in terms of a tacit agreement of lease between them.
76. In our submission, the Mokone matter sets out important principles which have direct relevance and application to the issues in this case.
76.1 Both Ms Mokone and Rissik leased premises to conduct businesses.
76.2 Like Ms Mokone, Rissik seeks to exercise a contractual right – in Ms Mokone’s case, it was to exercise her right of first refusal, in Rissik’s case, it is to sell the business that operated from leased property.
76.3 Both Ms Mokone and Rissik instituted proceedings to realise and enforce their rights.
76.4 Before those proceedings could be determined, the lease agreements in question expired, and the respective lessors sought their eviction from the premises.
76.5 In Ms Mokone’s matter, this Court held that it would not be in the interests of justice for her to be evicted from the property until proceedings to determine the right she sought to enforce were finalised.
76.6 Rissik similarly seeks to postpone its eviction, until such time as the arbitration proceedings where it seeks to enforce its contractual right and entitlement to sell its business are finalised.
90
76.7 In Mokone, this Court did not enquire into whether the stay of the eviction proceedings (and Ms Mokone’s continued occupation of the premises) required the reinstatement of the lease agreement and whether the courts have that power. Similarly, no such enquiry is required in the present case.
77. There are, in addition, three important differences between the Mokone matter and the current matter which add even more support to staying the eviction proceedings in this case.
77.1 First, in Mokone this Court had to invoke the general inherent power in section 173 of the Constitution to regulate its proceedings to order the stay of the eviction. In the present matter, Rissik has not asked the Courts to exercise their general powers, but has instead relied on section 6 of the Arbitration Act read with section 12B of the PPA, where this Court has found that there is a “high threshold” for refusing to stay proceedings.91
77.2 Second, unlike in Mokone, Rissik does not only assert private law contractual rights in the arbitration proceedings, but seeks to rely on the transformational remedial jurisdiction of the arbitrator under section 12B of the PPA to address the power imbalances between Rissik and Engen and correct the unfair and unreasonable practices that have been alleged.
91 Former Way at para 39.
77.3 Third, while Ms Mokone would still have been able to assert her right of pre-emption even if she were evicted from the premises, Rissik would not in the arbitration be able to vindicate its right to sell the business if it were to be evicted (as it would have no business to sell).
78. In the present matter, the SCA failed to have proper regard to:
78.1 the nature of section 12B arbitration proceedings;
78.2 the extent of the arbitrator’s powers to make awards to correct unreasonable practices;
78.3 Rissik’s allegations that Engen unfairly frustrated its right to sell its service station business that were referred to arbitration by the Controller (and the nature of the relief inherent in those complaints);
78.4 that the remedial award necessary to remedy that unfair and unreasonable contractual practice is one that enables Rissik to exercise its right to sell its business – this in turn requires it to remain in occupation of the premises; and
78.5 that refusing a request to stay proceedings required a “high threshold”
79. Ultimately, had the SCA had proper regard to the above factors, it would have found that the eviction proceedings were properly stayed by the High Court. It would have found granting a stay to be in the interests of justice.
80. Rissik asks that the SCA’s order be set aside, and that the High Court order be reinstated. The interdictory relief obtained before the High Court – that Engen may not take steps that will adversely affect Rissik’s operations pending the
final outcome of the arbitration process92 – in effect buttresses the stay relief and was correctly granted by the High Court.
RELIEF SOUGHT
81. Rissik accordingly seeks an order on the following terms:
81.1 Rissik is granted leave to appeal;
81.2 The appeal is upheld with costs, including the costs of two counsel;
81.3 The order of the Supreme Court of Appeal is set aside and replaced with the following order:
“The appeal is dismissed with costs.”
Grant Quixley Mitchell De Beer Applicants’ counsel Chambers, Cape Town 14 April 2022
92 HC judgment para 23.2 record vol 3 p 196.
