THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Not Reportable
Case no: 917/2018

In the matter between:
INNOVENT RENTAL & ASSET
MANAGEMENT SOLUTIONS (PTY) LTD

APPELLANT
and
TRANSNET SOC LTD

RESPONDENT

Neutral citation: Innovent Rental & Asset Management Solutions (Pty)
Ltd v Transnet SOC Ltd (917/2018) [2019] ZASCA
106 (5 September 2019)
Coram:
WALLIS, MBHA, ZONDI, VAN DER MERWE and
MBATHA JJA
Heard:
29 August 2019
Delivered: 5 September 2019
Summary:  Master rental agreement – termination by effluxion of time –
obligations of lessee in regard to return of equipment – meaning of
‘decommissioned’ in rental agreement.

ORDER

On appeal from: Gauteng Division of the High Court, Johannesburg
(Nicholls J, Moshidi and Coppin JJ concurring, sitting as court of appeal):
The appeal is dismissed with costs, including the costs of two counsel.

JUDGMENT

Wallis JA (Mbha, Zondi, Van der Merwe and Mbatha JJA
concurring)
[1] The appellant, Innovent Rental & Asset Management Solutions
(Pty) Ltd (Innovent), finances the acquisition and leasing of equipment.
On 17 February 2005 it concluded a Master Rental Agreement with the
respondent, Transnet SOC Ltd (Transnet),1 under which it would acquire
equipment in accordance with the specifications of Transnet and lease
that equipment to Transnet in accordance with the terms set out in the
rental schedule to the Master Rental Agreement. The agreement was
subsequently revised when the first tranche of equipment was acquired
and leased to Transnet. Subsequently five rental schedules were
concluded in relation to additional equipment. All of those agreements
have come to an end. Some of the equipment has been returned and the
present dispute arises from the condition in which it was returned.
Compensation has been agreed in respect of equipment not returned.

[2] The dispute revolved around the condition of the equipment that
was returned and the provisions of the clauses of the Master Rental

1 Then known as Transnet Limited t/a Transtel.

Agreement dealing with the return of equipment. The relevant clauses
read as follows:
‘11.1 User shall, on termination of this agreement, return the equipment in good
working order and condition, fair wear and tear excluded, together with all applicable
documents, licences and insurance policies to Hirer’s nominated address at User’s
cost and expense. Equipment must be securely packed and crated in a manner that
protects the equipment against damage during transportation.
11.2 The equipment shall not be regarded as returned unless (where applicable) it is
decommissioned in accordance with the original manufacturer’s specifications and
appropriate certificates have been supplied.
11.3 If it is not possible for User to return the equipment to Hirer in accordance with
the provisions of this agreement then the User must immediately at the expiration or
earlier termination of the renting of the equipment in terms of this agreement and at
the User’s cost deliver to Hirer replacement equipment approved by Hirer and of a
similar nature to the equipment, provided that Hirer may in its sole discretion accept
payment of an amount equal to the Residual Value of the equipment instead of
delivery of such replacement equipment. …’2

[3] Innovent contended in the high court that the equipment had not
been returned in good order and condition, and that in terms of
clause 11.2 it was to be regarded as not having been returned, because it
had not been decommissioned in accordance with the manufacturer’s
specification and was not accompanied by appropriate certificates.
Keightley J sitting in the Gauteng Division of the High Court,
Johannesburg, upheld the latter claim. She refused leave to appeal, but
this court granted leave to appeal to the full court. In a judgment by
Nicholls J (Moshidi J and Coppin J concurring), it upheld the appeal and
substituted an order of absolution from the instance with costs for the
order of the high court. This further appeal is with the special leave of
this court.

2 ‘User’ refers to Transnet  and ‘Hirer’ to Innovent.

[4] The only issue is whether, on the proper interpretation of clause
11.2 of the Master Rental Agreement, the equipment had to be
decommissioned in accordance with specifications prescribed by the
original manufacturer. Innovent contended that Transnet was so obliged
and that its failure to do so meant that the equipment should be treated as
not having been returned, affording it the right to claim monetary
compensation in accordance with clause 11.3. It was common cause that
the original manufacturer had not prescribed any special procedures for
decommissioning the equipment and, accordingly, that nothing had been
done in this regard when the equipment was returned. Transnet for its part
contended that, in the absence of any such specifications from the
manufacturer of the equipment, no obligations were imposed upon it by
clause 11.2.

[5] It is helpful to start by looking at the meaning of
‘decommissioned’. In the heads of argument filed on behalf of Innovent it
was submitted that it meant simply ‘uninstalled’. In other words, it
conveyed only that the equipment should be removed from the place
where it was installed and returned, without there being any special
procedures or processes to be followed in removing it. It was submitted
that this was the ordinary meaning of the word.

[6] That approach was not entirely in accordance with any of the
dictionaries I have consulted. According to the Shorter Oxford English
Dictionary3 the word ‘decommissioned’ means:
‘Take (a ship, installation etc) out of service.’
The Collins English Dictionary4 is to similar effect:

3 Shorter Oxford English Dictionary 6h ed (2007).

‘To dismantle or remove from service (a nuclear reactor, weapon, ship, etc which is
no longer required).’
The
Business
Dictionary5
gives
the
following
definition
for
‘decommissioning’:
‘Planned shut-down or removal of a building, equipment, plant, etc from operational
usage.’

[7] In the context of the buildings, plant, factories, ships or armaments
referred to in these definitions, one can readily understand that the
process of taking them out of active service would be technical and that
the original manufacturer might specify how that should be done. In
many
instances
this
might
also
be
necessary
because
the
decommissioning would be subject to regulatory statutes or regulations,
particularly of an environmental character. Thus, in the case of a nuclear
reactor there might be a need to specify how to deal with radioactive
material. In the case of mining equipment, as well as the mine itself, it
would need to be decommissioned in such a way as, for instance, to
prevent pollution and ensure that the mining activity would not lead to
subsidence or the catastrophic appearance of sinkholes. In the case of
armaments, the need for detailed specifications on the disposal of
explosives is apparent. In instances such as those the manufacturer might
well think it appropriate to provide decommissioning specifications at the
outset. 6

4 Collins English Dictionary 12 ed (2014).
5 Business Dictionary www.businessdictionary.com\definition\decommissioning.html (accessed 29
August 2019).
6 Merchant shipping that is EU flagged or visiting European ports must have and carry an Inventory of
Hazardous Materials in terms of the EU Ship Recycling Regulations 2013. European flagged vessels
may only be decommissioned at shipyards in the EU that are certified as green and in accordance with
a ship recycling plan that has been approved in advance of the commencement of decommissioning.
The regulations came into full force on 31 December 2018.

[8] However, not every piece of plant or technical equipment would
require of the manufacturer to specify at the time of manufacture how the
process of taking it out of service should be undertaken. Much plant and
equipment can be stripped down and removed quite simply. Often
equipment is simply scrapped when its useful life ends and it matters not
how it is dismantled and sent away for scrapping. Many buildings,
including factories and parts of power stations, are demolished with brute
force and fairly simple equipment such as sledgehammers or larger
equipment such as wrecking balls, bulldozers and front-end loaders. None
of this requires specifications from the original builder or manufacturer as
to the process of decommissioning.

[9] Understanding that manufacturers will only specify conditions for
decommissioning in certain instances, explains why, in clause 11.2, the
words ‘(where applicable)’ qualify the circumstances in which
compliance with such specifications and furnishing an appropriate
certificate to confirm such compliance was required of the user of the
equipment. It was only where the original manufacturer had seen fit to
specify the manner of decommissioning that it was necessary for the user
to ensure that the original manufacturer’s instructions were followed.

[10] Counsel for Innovent submitted that clause 11.2 contained a
presumption that in all cases there needed to be decommissioning in
accordance with the original manufacturer’s specifications. He sought to
overcome the difficulty that it was common cause that the original
manufacturer had done nothing of the sort, by taking the court on a tour
of the background to the conclusion of the Master Rental Agreement.
This, so he submitted, revealed that Transnet, through the various
consultants and firms that it dealt with in regard to the design,

manufacture and installation of the equipment, was solely responsible for
the nature of that equipment. Innovent, as the financier of its acquisition,
was entitled in the light of clause 11.2 to assume that Transnet would
ensure that the manufacturer would specify the requirements for
decommissioning. That it failed to do so could not be laid at Innovent’s
door and meant that Transnet did not comply with its obligations under
clause 11.2.

[11] The submission is based on a fundamental fallacy in the
interpretation of contracts – one that the courts have time and again
rejected. The starting point is clause 11.1. Under that clause Transnet was
obliged to restore the equipment to Innovent on termination of the Master
Rental Agreement in good order and condition, fair wear and tear
excepted. If it did not do so, then Innovent were entitled to be
compensated therefor in terms of clause 11.3. Similarly, if it returned the
equipment, but it was not in good order and condition, Innovent were
entitled to compensation under clause 11.3. In both instances the
compensation could take the form of either replacement equipment or
money.

[12] Clause 11.2 dealt with the different situation where the equipment
had been returned in good order and condition, fair wear and tear
excepted, but was equipment that, in addition to the conventional
documents, licences and insurance policies referred to in clause 11.1, had
to be decommissioned in accordance with specifications prescribed by the
original manufacturer. Such equipment ‘shall not be regarded as returned’
unless those specifications were complied with and compliance had been
appropriately certified. In other words, even though that equipment was
returned in good order and condition, it would not be accepted as having

been returned at all, unless there was compliance with the original
manufacturer’s decommissioning specifications and that had been
certified.

[13] The fallacy in counsel’s argument lay in describing clause 11.2  as
a presumption, and treating it as an independent enacting provision  when
in substance it is a proviso to clause 11.1. The correct approach was set
out as follows in Mphosi:7
‘According to Craies Statute Law 7th ed at 218 -
“the effect of an excepting or qualifying proviso, according to the ordinary rules of
construction, is to except out of the preceding portion of the enactment, or to qualify
something enacted therein, which but for the proviso would be within it; and such
proviso cannot be construed as enlarging the scope of an enactment when it can be
fairly and properly construed without attributing to it that effect”.
In R v Dibdin [1910] P 57 (CA), Lord Fletcher Moulton at 125 in the Court of
Appeal said:
"The fallacy of the proposed method of interpretation (ie to treat a proviso as an
independent enacting clause) is not far to seek. It sins against the fundamental rule of
construction that a proviso must be considered in relation to the principal matter to
which it stands as a  proviso. It treats it as if it were an independent enacting clause
instead of being dependent on the main enactment. The Courts … have frequently
pointed out this fallacy, and have refused to be led astray by arguments such as those
which have been addressed to us, which depend solely on taking words absolutely in
their strict literal sense, disregarding the fundamental consideration that they  appear
in a proviso.”’

[14] Counsel submitted that this construction was not commercially
sensible, because in those circumstances Innovent, as the financier, would
have no control over whether there was compliance with a formal
decommissioning process laid down by the original manufacturer of the

7 Mphosi v Central Board for Co-Operative Insurance 1974 (4) SA 633 (A) at 645C-F.

equipment. When, as occurred here, the equipment in final form as
installed was purpose-built to fit the client’s needs, in accordance with
specifications it had devised, it would be able to circumvent the potential
exclusion in clause 11.2 by purposely ensuring that the original
manufacturer did not specify any requirements for decommissioning.

[15]  There are two answers to this. The first is that there was no
evidence that Transnet was aware of the provisions of clause 11.2 in a
standard form contract at the time it was working with its advisers on the
design and manufacture of the equipment, or thought that it was under
any obligation to obtain decommissioning specifications from the original
manufacturer. No such obligation was specified in that clause or in clause
3.2, which stated that Transnet specially selected the equipment. The
second is that if it was important to Innovent in every case, bearing in
mind that it was accepted that the Master Rental Agreement was a
standard form agreement that it used in relation to transactions of this
type, it was open to it to include appropriate stipulations in its agreement
to secure that situation, or at least make enquiries and demand production
of the specifications before committing itself to providing the sought-for
finance.

[16]   Ms Coetzee explained in her evidence that Innovent’s business
model relied on its receiving only modest rentals during the subsistence
of the agreement, sufficient to cover the cost of its acquisition, and
securing a profit at the end of the agreement by reselling, or again
leasing, the equipment. However, far from that assisting Innovent, it
demonstrated that the interpretation of clauses 11.1 and 11.2 set out
above was correct. (I mention this evidence only to demonstrate that it
provides a commercial background that is consistent with my

construction of the clauses.) The business model provides the explanation
for Innovent requiring that the equipment be returned in good order and
condition, fair wear and tear excepted, together with all applicable
documents – operating manuals would be an example – licences and
insurance policies. Furthermore the equipment had to be securely packed
and crated in a manner that protected it against damage during
transportation. The background of the business model shows clearly that
clause 11.1 was designed to facilitate Innovent earning its profit by
reselling, or re-letting, the equipment on the second-hand market.

[17] Clause 11.2 fits neatly into that structure. If the manufacturer had
specified
decommissioning
in
a
particular
manner
and
after
decommissioning the equipment was to be sold, a prospective purchaser
would want to know that decommissioning had been undertaken as
specified. The position would be no different from that of the purchaser
of a second-hand motor vehicle wishing to be satisfied that the vehicle
had been maintained in accordance with the manufacturer’s service
manual.

[18] For those reasons Innovent’s contentions concerning the proper
construction of clause 11.2 cannot be accepted. The full court was correct
in its conclusion and in upholding Transnet’s appeal. I have my doubts as
to the correctness of its substituting an order for absolution from the
instance for the order granted by the trial court, but there was no cross-
appeal, so that order must stand.

[19] In response to a question posed by a member of the Bench, counsel
sought to resurrect the alternative claim based on the proposition that the
equipment was not in fact returned in good working order, fair wear and

tear excepted. In my view it was not open to him to do so. Keightley J
made no factual findings in respect of that claim and, on appeal to the full
court, the only issues argued were the proper interpretation of clause 11.2
and a question of prescription that was abandoned before us. Counsel
accepted that special leave was only sought and granted on the basis that
those two issues were the live issues in the case. There is a limited power,
where no prejudice would result, to permit a legal point, even one
deliberately abandoned, to be revived on appeal. However, this is not a
legal point, but a factual issue on which we have received no submissions
and have no findings from the trial court. The evidence of one of
Transnet’s witnesses, the person responsible for the design, installation,
maintenance and removal of the equipment, was not properly recorded
and was reconstructed from counsel’s notes. On grounds of fairness alone
it would not be open to us to make the requisite factual findings
suggested by counsel. There were disputes of fact and we would not be in
a position to resolve them fairly.

[20] The following order is made:
The appeal is dismissed with costs, including the costs of two counsel.

______________________________
M J D WALLIS
JUDGE OF APPEAL

Appearances ,
For appellant:
A Joubert SC (with him G P van Rhyn.) Heads of
argument prepared by A R G Mundell SC and G P van Rhyn.
Instructed by:
Otto Krause Inc, Roodepoort,

Adrie Hechter Attorneys, Bloemfontein
For respondent:
R Bedresi SC (with him A J Lapan)

Instructed by:
Poswa Incorporated, Sandton
Phatshoane Henney Attorneys, Bloemfontein.