A Supervening Impossibility Has Arisen – Is One Still Expected to Perform?

A case summary on Wilma Petru Kooij v Middleground Trading 251 CC

Our law has always made it clear that the label attached to an agreement is not, of itself, determinative of its character – the title of the agreement does not disguise its real nature. This principle was applied in Wilma Petru Kooij and Others v Middleground Trading 251 CC and Another,[1] where the Supreme Court of Appeal (“SCA”) held that rental did not need to be paid where the performance of an obligation by a party to an agreement becomes impossible after the conclusion of the agreement. That party is discharged from the liability if it was prevented from performing its obligation by vis major, but not if the impossibility was caused by its own fault.

Background:

On 23 April 2020 the SCA handed down judgment on the nature and consequences of an agreement that was entered into by the appellant, the Daleen Kruger Trust (“the Trust”) and the first respondent, Middleground Trading 251 CC (“Middleground”). On 30 September 2005, the parties had entered into an agreement whereby the Trust allowed Middleground to mine and harvest peat (a soil-like composition used for fuel and gardening) from a specified portion of its farms. The agreement was termed as a ‘Rent and rental agreement’ and the consideration for the mining was for R15 000,00 per month and an additional amount of R25.00 per cubic meter for any additional extraction of peat in excess of 600m3 per month.

The terms of the agreement stated that Middleground would only be entitled to cancel same if Middleground was prohibited from harvesting peat in terms of new legislation, or the peatland was depleted and no further harvesting could continue on the land. Any form of vis major would be a valid justification for Middleground to not perform its operations in terms of the agreement if it resulted in a permanent impossibility. Middleground had paid the ‘rental’ as agreed and had a credit balance on the Trusts reconciliation statements.

On 19 August 2011 the Department of Environmental Affairs (“the department) issued a Compliance Notice to the Trust and Middleground which contended that the ‘unlawful’ harvesting on the property caused serious harm to the environment and was prohibited from continuing. As a result, Middleground stopped harvesting peat and removed its equipment from the property. The Trust sent a letter to Middleground demanding payment for ‘arrear rental’ and it contended that Middleground had breached its obligations by no longer paying the rental. Middleground argued that the Compliance Notice halted the operations, which resulted in a vis major of a permanent nature which entitled it to cancel the agreement.

Litigation history:

In the court a quo the Magistrate’s Court held that there was a supervening impossibility that prevented Middleground from exercising its rights in terms of the agreement and therefore the Trust was not entitled to its claim for R1 051 796.00 in outstanding ‘rental’. The Trust took the matter on appeal to the High Court which also upheld the decision of the court a quo. In reaching its conclusion, the court held that the monthly payments constituted a prepayment for the peat to be mined. The court also upheld Middleground’s defence that there was a tacit term in the agreement that the amounts were only payable so long as it could legitimately exercise its rights to mine the peat.

Issues decided by the SCA:

  • Whether the written agreement entered into by the parties constituted a lease for immovable property.
  • Whether the tacit term alleged by Middleground should be imported into the agreement.
  • Whether the Department’s Compliance Notice constituted a vis major of a permanent nature as envisaged in the parties’ agreement.

The court’s decision:

In dealing with the first issue, the court accepted the Trust’s contention that the manner in which the parties conducted themselves after the conclusion of the contract should be considered as a part of the surrounding circumstances from which the parties’ intention can be inferred. The Trust further contended that the monthly payments of R15 000,00 constituted a rental obligation furthermore, Middleground had to occupy the property in order to extract peat; without the use and enjoyment of the property, they would not have been able to harvest the peat. The court submitted that although the agreement had a lease element, it however was not an indicator that the parties had entered into a lease agreement. The access to the property was incidental to the right to mine and harvest the peat. In additional to this, the monthly payment was not rental, but rather prepayments for the mining. The court therefore held that the agreement was not a lease for immovable property.

Secondly, the tacit term proposed by Middleground is that the minimum monthly payments were payable only insofar as Middleground was legitimately able to continue with their mining and harvesting activities. The court held that it was envisaged that Middleground would not be expected to pay for peat that it did not extract. There was therefore a basis for the tacit term to be imported into the contract.

Lastly, the Compliance Notice issued by the department was clear that the mining operations could no longer continue on the farm and as such, Middleground was no longer liable to continue with the prepayments on account of a vis major of a permanent nature. It is trite in law that where performance of an obligation by a party to an agreement becomes impossible after the conclusion of the agreement, that party is discharged from liability if it was prevented from performing its obligations as a result of a vis major. The court held that Middleground had discharged the onus of proving that the supervening impossibility was of a permanent nature and such impossibility was not due to its own fault. The appeal was accordingly dismissed with costs.

The case confirms an important principle in our law that a party to a contract cannot be expected to perform where a supervening impossibility of a permanent nature arises, which is not attributable to their own fault. It also highlights that the label that the parties may give to a contract does not disguise its true nature.

[1] [2020] ZSCA 45

Written by Sinenhlanhla Nene- Candidate Attorney

Overseen by Sifiso Msomi- Partner