THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Not Reportable

Case No: 211/2015

In the matter between:

RUSSEL HANGAR

FIRST APPELLANT
GARTH HANGAR

SECOND APPELLANT
GRAHAM OBERHOLZER

THIRD APPELLANT

and

JOHN ROBERTSON

RESPONDENT

Neutral citation: Hangar v Robertson (211/2015) [2016] ZASCA 102 (10
June 2016)

Coram:
Lewis, Leach, Pillay, Petse and Dambuza JJA

Heard:
16 May 2016

Delivered:    10 June 2016

Summary:     Contract – interpretation – contract not too vague to be
enforceable.

________________________________________________________________

ORDER
________________________________________________________________

On appeal from: KwaZulu-Natal Local Division of the High Court, Durban
(Koen J sitting as court of first instance):
The appeal is dismissed, with costs.
________________________________________________________________
JUDGMENT
________________________________________________________________

Leach JA (Lewis, Pillay, Petse and Dambuza JJA concurring)

[1] It is truly astonishing how often businessmen conduct their affairs,
involving at times huge financial interests, on the strength of crude and vague
agreements and then „rely on hope, good spirits, bona fides and commercial
expediency to make such agreements work‟.1 This is another such case, and
resulted in successful businessmen finding it necessary to go to court to
determine the true meaning of an agreement they had concluded. Dissatisfied
with part of the court‟s interpretation and a declaratory order which obliges
them to make a substantial payment to the respondent at some uncertain future
time, the appellants appeal to this court with leave of the court a quo.

[2] The appellants, first to third defendants respectively in the court a quo,
are the directors of a private company, Merlog Foods (Pty) Ltd (Merlog), which
carries on business as a wholesaler and distributor of frozen and chilled food

1 Per Harms JA in Namibian Minerals Corporation Ltd v Benguela Concessions Ltd [1996] ZASCA 140; 1997
(2) SA 548 (A) at 561G.

products, a large percentage of which is imported. Each appellant has a family
trust which holds 25 per cent of the shares in Merlog. The remaining shares are
held by the family trust of the first and second appellant‟s mother.  Merlog,
essentially a family business, was not as profitable as those involved thought it
ought to have been. The profit the company was making certainly seems to
have been small when compared to the volume of its turnover.

[3] The respondent, Mr John Robertson, the plaintiff in the court a quo, is a
successful businessman who retired and relocated to Australia in January 2006.
He had spent the previous 24 years with the McCarthy Motor Holding Group,
the last 14 years as managing director of the particularly successful Yamaha
Group. In 2005, a mutual friend introduced him to the three appellants to see if
he could possibly help them improve Merlog‟s business. Despite his retirement,
he was keen on being involved in some commercial project.  After meeting the
appellants and having inspected Merlog‟s books of account, he believed that he
could achieve a significant improvement in its profitability. The three appellants
had reached a stage in their business lives when they were considering the
possible sale of the business. The more profitable Merlog was, the more
attractive it would be to a potential buyer. As was said by the third appellant
when he testified, the sale of the business if it became more profitable „would
have been an exit strategy for us‟ and „would have been a way to realise a large
value out of the business‟.

[4]   After negotiations, it was eventually agreed that the respondent would
provide his services as a consultant. In a document dated 19 June 2006, the
parties recorded the terms of their agreement as follows (the initials „JR‟ refer
to the respondent; while PBT abbreviates „profit before tax‟):
„JR Role and Reward Agreement

Through discussion, and with knowledge of and reference to the past and current trading
environment, JR is to facilitate a process to:
Define/determine clear business objectives
Set some financial targets/goals
PBT R15M,>R19M,>R24M
PBT/Sales ratio 3% - 4% - 5%
. . .
Assess what has to change to achieve the above.
Develop and implement necessary action plans.
If implemented, this should achieve company value in excess of R60 million within 3 years.
Agreed that
JR basic expenses will be reasonably covered, approx. R5 000 per week
JR will be entitled to 10 per cent of the PBT exceeding R10 mil per financial year. This will
exclude abnormal income or expenditure (eg sale of assets, abnormal bonus payments)

JR will be entitled to 10 per cent of the net increase in the value of the company ie of the
value in excess of R24 million. This will only be awarded at the time when value is realised,
for example when the business is sold
JR will be given the option to purchase up to 10 per cent of the shares in the company, based
on the current “value” of R24million, and such option will remain open until 30 June 2009.‟

[5] Unfortunately things did not go as well as had been hoped. There were
personality clashes, particularly between the first appellant and the respondent,
both of whom appear to be strong-willed individuals. It is unnecessary for
present purposes to deal with the problems that arose nor to apportion blame,
but by mid-2009 it was clear that the relationship was in its death throes.
Whether it was terminated at a meeting held at a coffee shop in mid-year or
several months later, an issue that was in dispute in the court a quo, is neither
here nor there. The court a quo found the relevant date to have been 22

December 2009. This was not challenged and can be accepted as being the date
the contract between the parties ended.

[6]   The respondent had considered taking up his option to acquire a
shareholding in Merlog, but did not get around to doing so before 30 June 2009.
He thereafter received legal advice that the option had lapsed and could no
longer be exercised. However, during the time he had rendered his services as a
consultant, Merlog‟s value had substantially increased from the R24 million it
had been agreed was its value when the contract commenced. Accordingly, the
respondent sought to exercise the clause which entitled him to 10 per cent of
that net increase in the company‟s value. He also claimed payment of 10 per
cent of Merlog‟s profit before tax for the years 2009 and 2010 up to the date his
services ceased, which he claimed as due to him under the contract.

[7]   The appellants and Merlog resisted these claims and so, in July 2014, the
respondent instituted action.  The matter came to trial before Koen J who, on 19
January 2015, found in favour of the respondent. Unfortunately, due to a patent
error and a corruption that occurred during electronic storage of the original
judgment, it was necessary for the learned judge to issue a corrected order on 24
March 2015. Inter alia, this declared the respondent to be entitled to be paid a
percentage of Merlog‟s profit before tax for the tax years 2009 and 2010. This
portion of the order has not been challenged in this appeal and no more need be
said about it. The appellants, however, seek to impugn the relief granted against
them in the second paragraph of the order which reads as follows:
„Judgment against the First, Second and Third Defendants jointly, as follows:
2.1
An order declaring the First, Second and Third Defendants liable jointly to pay to the

Plaintiff 10 per cent of any excess by which the value of the Fourth Defendant as a

termination of the agreement on 22 December 2009 (calculated as the net profit

before tax of the Fourth Defendant for the financial year ending on 30 June 2010,

excluding any abnormal items of income or expenditure, multiplied by four),2

exceeded the sum of R24 000 000, such payment becoming due when either the

Fourth Defendant disposes of its business or the First, Second and/or Third

Defendants dispose of or realise their direct or indirect interest in the Fourth

Defendant, whichever shall occur first; and
2.2
An order granting leave to the Plaintiff to set the matter down for hearing again for

the purpose of obtaining judgment when it is contended that the liability of one or

more of the First, Second or Third Defendants‟ liability in paragraph 2.1 above has

become due for payment.‟

[8] The appeal essentially turns on the interpretation and effect of the clause
in the agreement of 19 June 2006 that the respondent would be entitled to 10
per cent of the net increase in Merlog‟s value over R24 million „only to be
awarded at the time value is realised, eg when the business is sold‟. For
convenience I intend to refer to this provision as „the disputed clause‟.

[9]   The principles applicable to the interpretation of a contract are well known.
A commercial contract seriously executed by parties with the intention of being
bound thereby should not lightly be held to be unenforceable because they
failed to express themselves as clearly as they could have done. Furthermore,
the context in which a contract is concluded is often of great importance. It is
often said that, in the interpretation of a contract, context is everything. That
probably goes too far, but it does emphasise the importance of context in the
process of interpretation. Disputed words have to be considered in the light of
all relevant and admissible context, including the circumstances under which
the contract came into being.3  As this court recently said:

2 This was the formula the parties used in calculating the value of the company as at the date of commencement
of the contract.
3 See in regard to these principles Bothma-Batho Transport (Edms) Bpk v S Bothma & Seuns Transport (Edms)
Bpk [2013] ZASCA 176; 2014 (2) SA 494 (SCA) paras 10-12; and Novartis SA (Pty) Ltd v Maphil Trading
(Pty) Ltd [2015] ZASCA 111; 2016 (1) SA 518 (SCA) paras 27-31.

„. . . the interpretative process is one of ascertaining the intention of the parties ─ what they
meant to achieve. And in doing that, the court must consider all the circumstances
surrounding the contract to determine what their intention was in concluding it. KPMG [ie
KPMG Chartered Accountants (SA) v Securefin Ltd & another 2009 (4) SA 399 (SCA) para
23] . . . explains that parol evidence is inadmissible to modify, vary or add to the written
terms of the agreement, and that it is the role of the court, and not witnesses, to interpret a
document. It adds, importantly, that there is no real distinction between background
circumstances and surrounding circumstances, and that a court should always consider the
factual matrix in which the contract is concluded ─ the context ─ to determine the parties‟
intention.‟4

[10] In the present case, an important part of the admissible factual matrix is
the correspondence which passed between the parties leading up to the
conclusion of their agreement on 19 June 2006. The crucial parts of this
correspondence are the following:
(a) On 27 March 2006 the respondent addressed an email to the first appellant
attaching a letter setting out certain strategies and goals. After stating that if the
necessary action plans were implemented, the company should achieve a value
in excess of R60 million within three years, he went on to state:
„I would want (to be discussed)
My basic expenses covered
10 per cent of the net profit exceeding R10 mil
10 per cent of the net increase in value ie of the value in excess of R24 mil
Option on 10 per cent of shares, based on value of R24mil, open for 3 years
I do not particularly want a “retainer” (although that would be nice) as I want to earn my
rewards through results.‟
(b) On 31 March 2006 the third appellant responded:
„Thanks for the response which you sent through to Russell [first appellant], we have had a
chance to discuss it and would like to take it further. Regarding your remuneration, we would
need to define what is covered by “basic expenses” and try to put together some budgeted
figures for this.  . . .

4 Novartis above para 27.

We are happy with the 10 per cent of net profit exceeding R10m and the share
options, but would obviously have to firm up the finer details - timing, etc. The only point we
are not comfortable with is the 10 per cent of the net increase in value of the business, as this
increase in value would represent an unrealised gain. I assume we would have to define the
basis on which we have reached the business valuation and then apply the same method
down the line to determine the increase, but until we actually realise this value it doesn‟t
really benefit us. We would like to somehow tie this in with a possible sale of the business?‟
(c) The respondent replied to this the same day, saying:
„As I have said from the outset, I must earn my keep from the results. So basic expenses
would be about R5k per month . . .
. . .
I don‟t want to pre-judge the outcome, but my gut-feel is that the strategy will be to
have an exit plan for about 3 years hence. So the goals and strategies would be to maximise
the value of the business by that time, so as to make it attractive for someone to acquire, or
merge with another business; I do have one in mind. Then a new direction, or shareholders
enjoy unlocking some serious cash to do what they really want to do. Bearing in mind that a
significant transaction would inevitably have some restraint, service contract, profit
performance undertakings. So linking some value to a sale (at some point in time) would be
fine by me, and makes sense.‟

(d) In an email message to the respondent of 2 April 2006, the third appellant
stated that „we are pretty much in agreement in terms of how your remuneration
should be structured, so let me know how you would like to progress from
here.‟

[11]   Considering the disputed clause in the light of these background
circumstances, the court a quo found that the agreement had been concluded at
a time when the parties contemplated the possible sale of Merlog or its business
at a time reasonably soon in the future. The appellants, however, did not want to
have to pay out what could be a substantial sum of money before they had
received payment for Merlog or its business, and it was to address this concern

of paying an „unrealised gain‟ that the disputed clause had included the
provision that the increased value would only be paid when „value is realised‟.

[12]  The appellants argued at the outset that, as appears from the respondent‟s
email of 27 March 2006, he wished to be remunerated in four ways: first his
„basic expenses‟; second, being paid 10 per cent of Merlog‟s net profit
exceeding R10 million; third, by payment of 10 per cent of the net increase in
Merlog‟s value; and fourth, having the option to buy a 10 per cent shareholding
in Merlog. However, so went a somewhat tortuous argument, this morphed into
the agreement of 19 June 2006 providing that the third element of remuneration
as set out in the disputed clause was an alternative to the share option (without
that ever having been stated to be the case, either in the preceding emails or the
written agreement itself). Moreover, as the agreement was to endure only for
three years until 30 June 2009, or so the appellants argued, if value had not been
realised by then the disputed clause would fall away and there could be no
award of value thereafter ─ although the respondent would still have the
prospect of long term growth in the company‟s value if he had taken up his
share option before it lapsed. As the business had not been sold during the
currency of the agreement with the respondent, the disputed clause had fallen
away and, effectively, the respondent had only himself to blame for not
exercising the option to purchase his 10 per cent shareholding and thereby
obtaining any percentage increase in value of the company.

[13] This cannot be accepted. First, while the parties were hopeful of Merlog
being turned around and sold when they concluded the respondent‟s service
agreement, their contract was never one that was due to lapse at the end of June
2009. It was only the share option that was extended to the respondent that
would lapse at that time. Indeed, as was found by the court a quo, the
respondent‟s contract only came to an end in December 2009, and there can be

no reason to conclude that his entitlement to exercise his right to claim a
percentage of the increase in the value of the company had terminated months
before then.

[14] In addition, the underlying pillar of the appellants‟ argument, namely that
the share option and the disputed clause were ultimately agreed to be alternative
and not cumulative forms of remuneration, is unsustainable. Had it been the
parties‟ intention that the option was to be an alternative to the 10 per cent of
the net increase in value of Merlog, it would have been both easy and obvious
for them to have said so. They did not. They limited the option to a set date but
left the duration of the contract open-ended. That is in itself a clear indication
that the two clauses were cumulative and not alternative. Indeed the third
appellant, in testifying, stated that the various elements of the respondent‟s
remuneration were separate and distinct. He was correct, and that appears from
a plain reading of the agreement. As already mentioned, a court must be wary
of providing terms that the parties did not agree upon, even if with the wisdom
of hindsight it might be of the view that the parties ought to have reached an
agreement along those lines.

[15]   The appellants, however, argued that the respondent had never had in
mind „a double 10 per cent‟(as appellants‟ counsel put it) being both 10 per cent
of the increase in value of Merlog, as well as the right to obtain a 10 per cent
shareholding at a price determined before any increase in value had occurred.
They sought to find support for this in the respondent‟s reaction when he raised
the possibility of exercising his option in an email he sent to the appellants on
27 June 2007, stating that he had been thinking about exercising his right to
purchase a 10 per cent share of Merlog and asked whether this raised any
concerns or points for discussion. In a response emailed to him the following
day, the third appellant said:

„As per our agreement you do have the option of purchasing a 10 per cent shareholding in
Mercantile at the agreed value of R24m, so I have no problem with this. In the agreement
regarding how you will be remunerated there are five points:
1.  Basic expenses
2.  Commission on PBT > R10m
3.  Commission on value > R24m on sale
4.  Option to purchase 10 per cent
5.  Commission on negotiating successful sale
Am I correct in my understanding that should you choose to exercise the share purchase
option it replaces the commission option in point 3?‟
The so-called „commission option in point 3‟, to which the third appellant
referred is, of course, the disputed clause entitling the respondent to an increase
in Merlog‟s value. The respondent‟s immediate reaction in an emailed response
was that
„I had not thought about it, but basically yes. As a shareholder I would invest and thus be
entitled to profit shares/dividends, so I guess the point 3 would be superfluous as I will get 10
per cent of the total sale value in the event of a sale‟.

[16] It is opportunistic for the appellants to rely upon this as an indication that
the parties had always been of a mind that the disputed clause and the share
option were alternative provisions. Indeed it is quite clear from the
correspondence that the first four points mentioned in the third appellant‟s
email of 29 June 2007 had at all times been separate and independent forms of
remuneration and benefit (as was conceded by the third appellant). It was never
suggested in any of the correspondence that the disputed change was ever to be
an alternative to the option to purchase a shareholding. And, as the respondent
stated at the outset in his response, he had not really thought about the matter
before he replied to the third appellant‟s question. On testifying before the court
a quo, he stated that, to his mind, the situation was that if the business of
Merlog was about to be sold he could, technically, have exercised his option to

purchase but that it would have appeared to have been „a little bit excessive‟
and that „I did not want to be unduly greedy and we were working all together‟.
In the circumstances, his reaction can hardly be seen as providing proof of an
intention, in concluding his contact to regard the option as an alternative to
obtaining a share in the increased value of the company.

[17]   On a somewhat different tack, the appellants then argued that the series of
emails preceding the conclusion of the agreement on 19 June 2006
demonstrates that the increase in value mentioned in the disputed clause was to
be linked to and determined either by the sale of the business, which the parties
had specifically in mind, or any other transaction that should realise value. It
was argued that this was not a „formula driven as at the date of termination of
the contract and then payable on the realisation of any value at all at some later
date,‟5 and that the „value‟ had to be determined when it was „realised‟ ─ and
that to hold otherwise would result in the appellants having to face the situation
the parties had sought to avoid, namely, the creation of a liability that could not
be met without the funds being at hand. The argument was therefore that if
value were to be determined at a particular point of time, and the business sold
at a later date when its value might have decreased, the purpose of the provision
would be defeated. And thus, so the argument went, on a proper construction of
the contract, should value not have been realised when the respondent‟s
contract came to an end, there would be no award.

[18] There is no merit to this. The clear intention of the parties in providing
for the increase in value only being „awarded at the time when value is realised‟
was to defer payment of an amount to which the respondent had already
become entitled. Indeed the third appellant also testified that his understanding
of the word „awarded‟ was that it meant „paid over‟. The court a quo

5 I quote from appellants‟ heads of argument.

consequently correctly concluded that the clause „awarded at the time when
value is realised‟ emphasises that the realisation of the value would not
determine the amount of the payment but that „it is the time when value is
realised which determines when such remuneration is to be “awarded” to the
plaintiff.‟ To conclude that the value had to be realised before the appellants‟
contract of service came to an end would amount to inserting a clause to that
effect into the agreement that had never been agreed between the parties. The
appellants‟ contention in that regard cannot be sustained.

[19]  The court a quo also found that in order to give the agreement a business
efficacy, and to avoid an absurdity, the agreement cannot be interpreted as
meaning that payment of any amount under the disputed clause is dependant
only on the extent to which value might ultimately be realised. It commented
that the Merlog shares might only be sold after many years and at a time when
the value realised could have increased dramatically through no effort of the
respondent. On the other hand, it might have been run into the ground after he
had left which would result in him receiving no remuneration for his services
which had previously increased its value. In the light of this, the court
concluded that the parties must have intended that value would be determined
either when the business was sold or realised, if that occurred during the
currency of the parties‟ agreement or, if thereafter, at the time the respondent
ceased to render services. That indeed seems to me to have been implicit in the
agreement between the parties, and there is no reason to interfere with the
conclusion of the court a quo in that regard.

[20] As a final string to their bow, however, the appellants argued that the
phrase „when value is realised‟ is impossible to decipher as the parties never
properly appreciated the legal complexities of what they were doing when they
reached agreement or precisely what it was that they were agreeing to, beyond

giving the example of a sale. It was argued that they had not catered for the fact
that it was a company that owns the business and that, should it be sold, the
appellants themselves will not realise any value as the shares are owned by
family trusts which are neither parties to the litigation nor parties to the
agreement. In my view there is no merit in these contentions. The respondent
may have been short-sighted in agreeing to the appellants‟ suggestion to the
insertion of the clause, but it is not in my view so vague as to be unenforceable.
The amount to which the respondent became entitled on termination of his
contract is readily capable of ascertainment, albeit that it will only become
payable to him when that value is realised by the appellants. And as counsel for
the respondent argued, although it may not be possible or practical to endeavour
to specify in advance what particular occurrence will trigger the obligation to
make payment, that in itself does not render the contract vague and
unenforceable. Should an event occur which the respondent feels amounts to
realisation of value in the hands of the appellants, he would be at liberty to
demand payment and, should it be refused, to place evidence before a court for
it to decide whether the circumstances are such that the payment has become
due.  Hopefully it will not come to that, and the parties will show more common
sense than they have displayed thus far. For these reasons I am not persuaded
that the court a quo erred in any way. The appeal must therefore fail.

[21] One further matter should briefly be mentioned. Counsel for the
respondent asked for an order for costs, to which the respondent is of course
entitled. However, he specifically requested that the costs order should include
the costs „consequent upon the employment of senior counsel‟. This court has
previously observed that such an order is inappropriate and that, where a single
counsel is employed no special order is required, it being for the taxing master
to determine a fair and reasonable fee on taxation ─ see City of Johannesburg
Metropolitan Municipality v Chairman of the Valuation Appeal Board for the

City of Johannesburg & another.6 Although the employment of senior counsel
in the present case appears to have been a wise and reasonable precaution, it
would be wrong for this court to fetter the taxing master‟s discretion.

[22] The appeal is dismissed, with costs.

__________________
L E Leach
Judge of Appeal

6 City of Johannesburg Metropolitan Municipality v Chairman of the Valuation Appeal Board for the City of
Johannesburg & another [2014] ZASCA 5; 2014 (4) SA 10 (SCA) para 34.

Appearances:

For the Appellants:

M Pillemer SC

Instructed by:

Goodrickes Attorneys, Durban

Matsepes, Bloemfontein

For the Respondent:

S R Mullins SC
Instructed by:

Mark Drummond Attorneys, Kloof

Webbers, Bloemfontein