CONSTITUTIONAL COURT OF SOUTH AFRICA
Rissik Street One Stop CC t/a Rissik Street Engen and Another v Engen Petroleum Limited
CCT 196/21 Date of hearing: 4 August 2022 ________________________________________________________________________
MEDIA SUMMARY
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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 Thursday, 4 August 2022 at 10h00, the Constitutional Court will hear an application for leave to appeal against the order of the Supreme Court of Appeal dated 26 May 2021, upholding the respondent’s appeal against the judgment and order of the High Court of South Africa, Limpopo Division, Polokwane (High Court) dated 12 February 2020.
The second applicant, Johannes Willem Knoesen as the sole member of the first applicant, Rissik Street One Stop t/a Rissik Street Engen (collectively Rissik Street), a petroleum retailer conducting the business of a service station, entered into an operating agreement with the respondent, Engen Petroleum Limited (Engen), a petroleum wholesaler. Engen as the notarial lessee of the premises in Polokwane, Limpopo, subleased the premises to Rissik Street on which it operates its petroleum retail business. Rissik Street has occupied the premises since 1998 under the terms of the operating lease, which had been renewed from time to time. In anticipation of the expiry of the operating lease the parties endeavoured to negotiate the extension of the agreement. A dispute arose between the parties when the landowner of the premises demanded Engen make payment in the amount of R 3million as a condition for the renewal of the notarial lease. Engen obliged but then sought to recover the payment from Rissik Street by making it a condition of renewing the operating lease. The parties were unable to reach an agreement in respect of the R 3million payment, and Engen subsequently notified Rissik Street of its intention not to renew the operating lease which was to expire on 30 June 2018. The operating lease entitled Rissik Street to attempt to sell the business within a twelve-month notice period, Engen accordingly provided Rissik Street with the stipulated notice, which was to expire on 2 October 2018. Rissik Street presented Engen with a potential purchaser for the business, but Engen did not approve the sale citing the proposed purchaser’s lack of compliance. A request by Rissik Street for reasons for the alleged lack of compliance was refused. Rissik Street consequently requested that the Controller of Petroleum Products (Controller) direct that the parties should submit to arbitration on the basis that
Engen’s conduct manifested unfair and unreasonable contractual practice in terms of section 12B of the Petroleum Products Act 120 of 1977 (PPA).
Whist awaiting the decision of the Controller on whether the matter would be referred for arbitration, the operating lease terminated through the effluxion of time on 30 June 2018 and the twelve-month notice period subsequently lapsed on 2 October 2018. Rissik Street however attempted to introduce a second potential purchaser to Engen, but the proposed buyer was again rejected. Engen then provided Rissik Street with written notice to vacate the premises.
Rissik Street refused and Engen consequently launched eviction proceedings in the High Court.
Rissik Street opposed the eviction application and brought a counterclaim seeking a stay of the proceedings pending the outcome of their request to the Controller. Engen argued that Rissik Street was not opposing the eviction application on the basis that it desired to remain in occupation of the premises, but instead the request was harboured under the belief that it was entitled to sell the business. It contended that it was under no obligation, contractually or otherwise, to allow for the unlawful occupation of the premises in order to facilitate Rissik Street’s attempts to sell the business. Engen argued that the operating lease had terminated and as such, Rissik Street’s continued occupation of the premises was unlawful. The High Court was therefore required to make a determination on the following issues: (a) whether to stay eviction, pending the determination by the Controller of Rissik Street’s dispute referral in terms of section 12B of the PPA?; (b) if proceedings were to be stayed, whether Engen should be interdicted from taking steps that will adversely affect the operations of Rissik Street, pending the arbitration?; and (c) if Rissik Street’s counterclaim was refused, whether they should be evicted from the premises?
The High Court disagreed with Engen’s contentions on the following basis: (a) that it defeats the purpose of section 12B of the PPA; (b) that in terms section 12(B)(a) of the PPA, the parties determine the rules of arbitration and are at liberty to include any dispute, which in the case at hand, may have included eviction proceedings, (c) as soon as Rissik Street was evicted, their source of income would be diminished, which would impede their ability to finance the pending litigation;
and (d) Business Zone 1010 CC t/a Emmarentia Convenience Centre v Engen Petroleum Limited 2 017 (6) BCLR 773 (CC) (Business Zone CC) provides that arbitration procedure suspends the institution of Court litigation. The Court held that an Arbitrator in terms of section 12B(4)(a) has the power to make such an award as he/she deems necessary to correct such practice. The High Court found that it would be in the interests of justice for the eviction proceedings to be stayed, pending the outcome of the referral by Rissik Street of the alleged unfair and/or unreasonable contractual practice to the Controller for determination. It also 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.
Aggrieved by the High Court’s ruling, Engen approached the Supreme Court of Appeal seeking to appeal the High Court’s judgment and order. Engen challenged the findings of the High Court on various grounds. The Supreme Court of Appeal found that it was not open for Rissik Street to rely on the right to sell the business as a form of security against eviction. It explained that the right to sell the business should be exercised during the currency of the lease. The Supreme Court of Appeal found that the High Court’s exercise of its discretion to grant the stay of eviction proceedings was influenced by wrong principles and as such, it was entitled to interfere by setting aside the High Court’s order. Accordingly, the Supreme Court of Appeal upheld Engen’s appeal, set aside the High Court’s order and substituted it with an order dismissing Rissik Street’s counter application. Rissik Street was ordered to vacate the premises within 30 days from the date its order.
Rissik Street approached the Constitutional Court seeking to appeal the Supreme Court of Appeal’s order upholding Engen’s appeal against the High Court’s order. The principal question before this Court is: under which circumstances can a stay of eviction proceedings be granted where a party has referred allegations of unfair and unreasonable contractual practices to arbitration under section 12B of the PPA, pending the outcome of arbitration processes in terms of the PPA?
Rissik Street submits that the jurisdiction of the Court is engaged as the application raises both constitutional matters as well as arguable points of law of general public importance – the latter being reflected in the principal question before the Court. Rissik Street argues that the Supreme Court of Appeal’s findings were flawed in two respects. Firstly, the proposition that the relief sought by Rissik Street to extend the operating lease was not specified in the request to the Controller and could therefore not be considered by the Arbitrator was flawed in that it contradicted the Constitutional Court’s findings in Business Zone CC and Crompton Street Motors CC t/a Wallers Garage Service Station v Bright Idea Projects 66 (Pty) Ltd (Crompton). Rissik Street argued that in these matters it was held that section 12B of the PPA grants the Arbitrator “wide remedial powers” to make a reward that he/she “deems necessary” to “correct” “unfair or unreasonable” practice. It was further held that the equitable standard that section 12B imposes,
“overrides the terms of their contract to ensure that fairness and reasonableness prevail” and lastly that the purpose of the introduction of section 12B is to promote transformation in the petroleum industry, which includes addressing the unequal bargaining power of fuel wholesalers and suppliers. Rissik Street submits that the PPA only requires that the party alleges unfair or unreasonable practices, and that the Arbitrator should then make an award he/she deems necessary to correct it. Secondly, the Supreme Court of Appeal’s proposition that the reinstatement of the operating lease is not a competent remedy under section12B of the PPA, is held by Rissik Street to be flawed as the text and purpose of section 12B does not support this assertion. Rissik Street submits that it does not seek relief by way of the reinstatement of the operating lease but seeks relief that would put it in the same position had Engen not frustrated Rissik Street’s right to sell the business. Such relief would require Rissik Street to remain in occupancy of the premises and have the temporary extension of the arrangements provided for in the operating lease.
The application is opposed by Engen who seeks to have the order by the Supreme Court of Appeal upheld. In interpreting section 12B(4)(a), Engen submits that on an ordinary, grammatical reading of this section, read in the context of section 12B(1), provides that the scope of the Arbitrator’s remedial power extends to putting right the relationship between two contracting parties. When a right or duty is exercised or enforced in a way that is unfair or unreasonable, the purpose of the Arbitrator’s remedial power is to correct that particular practice. It is Engen’s submission that an award extending the tenure does not alter, let alone transform, the structure of the parties’
relationship when they exercise their rights or carry out their duties – it does not correct the practice that has been submitted to the Arbitrator. This interpretation, as contended for by Engen, is supported by the text of section 12B, its underlying purpose, and the statutory context, and is also the interpretation which best gives effect to the spirit, purport and object of the Bill of Rights.
Accordingly, an award extending the operating lease fails to realise the purpose of section 12B, which is to equalise power relations by correcting practices that materialise this inequality. Engen further submits that the Supreme Court of Appeal was correct in its finding that the Arbitrator, as appointed under the provisions of section 12B of the PPA, does not have the jurisdiction nor the powers to determine an issue which has not been specifically cited in the request for referral to the Controller. It is submitted that in exercising his/her remedial powers, the Arbitrator is not empowered to award an extension of tenure, where the operating lease has terminated through the effluxion of time as this would amount to creating a contract on behalf of the parties, which is contrary to the right to freedom of contract afforded to parties. Engen argues such an award would be unlawful.
