1 July 2020 by and Dispute Resolution Alert

Repudiation: Does withholding supply automatically constitute repudiation?

In the Petroleum Industry wholesalers often insert exclusivity provisions in their supply agreements prohibiting the retailer/dealer from storing and/or purchasing petroleum products from other wholesalers and that the wholesaler may discontinue supply if the retailer’s account is in arrears.

The Supreme Court of Appeal (SCA) in Micaren Exel Petroleum Wholesaler (Pty) Ltd v Stella Quick Shop (Pty) Ltd and Another (Case no 471/2019) [2020] ZASCA 61 (9 June 2020) was recently required to ascertain whether Micaren Exel Petroleum Wholesaler (Pty) Ltd (Micaren) had repudiated the dealership agreement concluded with Stella Quick Stop (Pty) Ltd (Stella) by discontinuing the supply of petroleum products.

In summary, Micaren and Stella concluded a dealer agreement during 2014 in terms of which Micaren agreed to supply and deliver petroleum products to Stella. The petroleum products were to be stored in underground tanks, installed by Micaren prior to the effective date of the dealer agreement.

In terms of the dealer agreement only the petroleum products purchased from Micaren could be stored in the tanks and Stella was prohibited from buying petroleum products from any other wholesaler. It was specifically recorded that the underground tanks would remain the property of Micaren and Stella would be liable for any damages suffered by Micaren if the tanks are used for any other purpose other than those agreed upon.

During January 2017, Stella started buying petroleum products from the second respondent, Elegant Fuel (Pty) Ltd, and storing such petroleum products in the tanks installed on the premises. This was pursuant to Micaren discontinuing the supply of petroleum products to Stella, in November 2016.

On 22 November 2016, Stella had admitted liability to Micaren for R504,455.36 in respect of petroleum products previously supplied and delivered. Thereafter Stella made certain payments, reducing the amount to R449 720.39. On 24 January 2017 Micaren’s attorneys issued a notice in terms of section 345 the old Companies Act to Stella demanding payment of R449,720.39 within 21 days, failing which Stella would be wound up. On 25 January 2017, Stella’s attorneys addressed a letter to Micaren alleging repudiation of the dealer agreement by Micaren in failing to supply Stella with petroleum products it had ordered, and by unilaterally and unlawfully imposing the Regulatory Accounting System (RAS).

Stella consequently accepted the alleged repudiation and cancelled the dealer agreement. On 28 January 2017, Micaren approached the High Court seeking an order that Stella be interdicted and restrained from buying petroleum products from any other wholesaler other than Micaren. Stella’s opposition to the interdict application was that Micaren had repudiated the dealer agreement as a result of which it was cancelled, the tanks were its own property and thus the requirements for an interdict had not been met.

The High Court found that the clauses of the dealer agreement only prohibited the storage of petroleum products purchased from other wholesalers and not the purchase of petroleum products from other wholesalers. The court further held that there was no basis for the interdict sought by Micaren since the dealer agreement had been cancelled. The interdict application was therefore dismissed.

On appeal, Micaren argued that it had not repudiated the dealer agreement, but that it had stopped delivering petroleum products to Stella due to the outstanding payment for petroleum products it had previously supplied and delivered. Micaren argued that the alleged repudiation and purported cancellation of the dealer agreement had to be considered within the context of the preceding events.

The SCA held that the traditional approach to an enquiry into an allegation of repudiation is to examine the objective intention of the repudiator and the response or acceptance thereof by the aggrieved party. The question is whether the conduct of the repudiator or non-performing party, when fairly considered by a reasonable person in the place of the aggrieved or innocent party, demonstrates an intention to no longer be bound by the contract. Such conduct must be viewed comprehensively.

In Nash v Golden Pumps (Pty) Ltd 1985 (3) SA 1 (A) at 22C-F Corbett JA described repudiation as follows:

‘Where one party to a contract, without lawful grounds, indicates to the other party in words or by conduct a deliberate and unequivocal intention no longer to be bound by the contract, he is said to “repudiate” the contract. . . Where that happens, the other party to the contract may elect to accept the repudiation and rescind the contract. If he does so, the contract comes to an end upon communication of his acceptance of repudiation and rescission to the party who has repudiated . . .’

The SCA held that the High Court erred by simply accepting Stella’s assertion that Micaren’s failure to supply and deliver petroleum products constituted a repudiation of the dealer agreement without considering the full context of the matter. The SCA held further that Micaren’s refusal to deliver petroleum products to Stella had persisted over a period of at least two months, yet it was only when Micaren issued the section 345 notice that Stella raised the issue of repudiation.

At no point did Micaren demonstrate an intention not to be bound by the dealer agreement, and that on the contrary, its actions were strictly in accordance with the provisions of the dealer agreement.

The SCA thus held that a reasonable person in Stella’s position, would not have concluded that Micaren was repudiating the agreement. Consequently, the dealer agreement had not been repudiated and Stella had breached its obligation under the dealer agreement by purchasing petroleum products from another wholesaler. This conduct was to Micaren’s detriment and Micaren had satisfied the requirements for a final interdict.

The appeal was thus upheld, and Stella was interdicted and retrained from purchasing and storing petroleum products from any other wholesaler.

It can therefore be concluded that withholding performance in terms of an agreement does not automatically constitute repudiation and the court is required to consider the full context of the matter.

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