The constitutional court today allowed an appeal against the judgment of the SCA.  This is a landmark decision.  As will appear from the excerpts below, the concept of unfairness or unreasonableness as developed in employment law has now found its way into  certain contracts, more particularly in the petroleum industry.  Section 12B of the Petroleum Products Act 120 of 1977 was considered and interpreted and just as in employment law a single act constitutes a contractual practice under s 12B.  The decision of the Controller of Petroleum Products and Minister of Minerals and Energy is reviewable in terms of s 6(2)(d) of the Promotion of Administrative Justice Act 3 of 2000.

Business Zone 1010 CC t/a Emmarentia Convenience Centre v Engen Petroleum Ltd (CCT09/16) [2017] ZACC 2 (9 February 2017) per Mhlantla J (Mogoeng CJ, Nkabinde ADCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Mbha AJ, Musi AJ and Zondo J concurring)

Excerpts without footnotes

Introduction

[1]   This is an application for leave to appeal against a judgment and order of the Supreme Court of Appeal.[1] The application concerns the review of decisions by the Controller of Petroleum Products (Controller) and the Minister of Minerals and Energy (Minister) not to refer an alleged unfair or unreasonable contractual practice by Engen Petroleum Limited (Engen) to arbitration in terms of section 12B(1)[2] of the Petroleum Products Act[3] (Act).  This application in the main is about the proper interpretation of section 12B.

[2]   The applicant is The Business Zone 1010 CC t/a Emmarentia Convenience Centre (Business Zone) and the first respondent is Engen. Business Zone is a licensed retailer and Engen is a licensed wholesaler of petroleum products, each as contemplated by the Act.  The second respondent is the Controller, and the Minister is the third respondent.  They abide the decision of this Court.

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Supreme Court of Appeal

[25]   Engen appealed to the Supreme Court of Appeal. In a judgment penned by Ponnan JA, the Supreme Court of Appeal rejected the Pretoria High Court’s interpretation of section 12B.  The Supreme Court of Appeal held that section 12B could not confer jurisdiction on an arbitrator to decide disputes where a contract between the parties had been terminated.  The Supreme Court of Appeal further held that the interpretation proffered by Business Zone would result in a concurrency of jurisdiction and with the potential to cause anomalous consequences.

. . . . .

Issues

[37]   This Court has to determine the following issues:

(a)       Do the decisions of the Controller and the Minister amount to administrative action for purposes of PAJA?

(b)       If so, are these subject to review under PAJA?

(c)       What is the proper interpretation of section 12B of the Act?

(d)       Can a singular act of cancellation of a contract amount to a “contractual practice” in the context of section 12B of the Act?

(e)       What is the effect, if any, of Engen’s purported “second cancellation” on the Controller’s ability to refer Business Zone’s complaint under section 12B of the Act?

(f)        What is an appropriate remedy?

. . . . .

Equitable standard

[47]   One of the purposes of the Amendment Act is set out in its preamble and is, amongst others, “to promote transformation of the South African petroleum and liquid fuels industry”. Schedule 1 to the Amendment Act goes on to introduce an industry charter “on empowering historically disadvantaged South Africans in the petroleum and liquid fuels industry”.

Unequal bargaining power in the petroleum industry is pervasive even in more developed countries such as our common law comparator, England, whose history of inequality pales in comparison with our own.[1]

[48]   Both in written and oral argument counsel for Business Zone submitted that the real significance of section 12B does not lie in the Controller’s power to compel the parties to refer their dispute to arbitration, but in the equitable standard it imposes. A standard that overrides the terms of their contract to ensure that fairness and reasonableness prevail.  Counsel for Engen agreed with this proposition when questioned during oral argument.

[49]   It would seem that the standard of fairness provided for in section 12B was inspired by the standard of fairness upon which our pre-democracy unfair labour practice jurisprudence under the Labour Relations Act, 1956, as amended, (1956 LRA) was based and upon which our unfair dismissal law under the current Labour Relations Act[2] (LRA) is based. Support for this view is as follows: Prior to the LRA, the unfair labour practice jurisprudence was based on the concept of an “unfair labour practice” which was defined in the 1956 LRA.

Section 12B refers to the concept of an “unfair or unreasonable contractual practice”.  Both the words “unfair” and “practice” which we had in the concept of an unfair labour practice under the 1956 LRA are to be found in the concept of an “unfair or unreasonable contractual practice” provided for in section 12B.  Under section 46(9) of the 1956 LRA a party referring an unfair labour practice dispute to the Industrial Court for adjudication had to allege an unfair labour practice by the other party to the dispute.  Under section 12B as well, a licensed retailer seeking the referral of “an unfair or unreasonable contractual practice” by a licensed wholesaler is required to allege an unfair or unreasonable contractual practice by the licenced wholesaler.

Under the 1956 LRA an alleged unfair labour practice would be subjected to adjudication or sometimes arbitration.  Under section 12B an alleged unfair or unreasonable contractual practice is subjected to arbitration.  Therefore, the fairness required in our labour law jurisprudence is the same as the fairness in section 12B.

[50]   Understanding that the nature of the standard of fairness provided for in section 12B is the same as that found in the concept of an unfair labour practice and in our law of unfair dismissal is important, because the unfair labour practice jurisprudence and the unfair dismissal jurisprudence may throw light on what is and what is not possible under the standard of fairness created in section 12B.

A good example of this is that both in terms of the unfair labour practice jurisdiction under the 1956 LRA and in terms of the unfair dismissal jurisprudence under the LRA, a court or tribunal given power to decide unfair labour practice disputes or unfair dismissal disputes has the power to order the reinstatement of a contract of employment that had been lawfully and validly terminated by the employer if that court or tribunal concluded that the employer committed an unfair labour practice or under the LRA concludes that the dismissal was unfair for lack of a fair reason to dismiss.

In other words, the tribunal or court has power to compel the employer to continue with an employment contract which had been validly terminated.  In this regard reference can be made to National Union of Mineworkers v Marievale Consolidated Mines Ltd (Marievale).[3]  In that case, although the High Court had found that the termination of the employees’ contracts of employment had been valid in law,[4] the Industrial Court ordered the employer to reinstate the employees after it had found that the termination of their contracts of employment had been unfair or constituted an unfair labour practice.[5]

Subsequently, the High Court dismissed a review application that sought to have the reinstatement order of the Industrial Court reviewed and set aside on, inter alia, the basis that the termination of the contracts of employment of the employees had been valid in law.

[51]   It is not the first time that the standard of fairness in the labour and employment field inspires the imposition of the standard of fairness in other areas as well. The Legislature also included the same standard in regard to disputes between landlords and tenants under the Rental Housing Act (RHA). The RHA uses the concept of an “unfair practice” where the 1956 LRA used the concept of an “unfair labour practice” and section 12B uses the concept of “unfair or unreasonable contractual practice”.

[52]   In its judgment, the Supreme Court of Appeal stated that the failure to define the jurisdiction of the arbitrator, on the one hand, and the courts, on the other, would result in anomalous consequences.[6] I disagree.  The contention that two different adjudicative standards, one equitable and one not, apply based on the forum that the parties find themselves before is unsustainable.  There is sufficient context and justification to accept that the equitable standard of fairness and reasonableness prevails in all petroleum contracts regardless of whether they are subject to statutory arbitration or ordinary court litigation.

[53]   As I have already stated, the imposition of the equitable standard on contractual relationships already happens in employment matters and in residential leases. The LRA imposes a fairness standard on the contractual relationship between employers and employees,[7] and the RHA does the same for landlords and their tenants through its unfair practice standard.[8]  It is true that the LRA and RHA also established separate adjudication structures to deal with disputes under the equitable standard,[9] but this does not assist the argument that section 12B establishes an exclusive parallel institution to deal with the equitable standard.

[54]   First, the establishment of separate adjudicative institutions under the LRA and RHA does not mean that the equitable standard under those Acts does not also apply to common law contractual employment and residential lease disputes. It is difficult to imagine any employment dispute under the common law still being determined as if the fairness standard developed under the LRA is irrelevant, and I am not aware of that being the case.[10]  The application of the unfair practice standard under the RHA to common law residential lease disputes was left open by this Court in Maphango.[11]

[55]   Second, the institutions set up under those two statutes form part of an elaborate construction of a separate and parallel institutional hierarchy to deal with and give effect to the respective constitutional rights to fair labour practices and access to housing. Section 12B of the Act holds no pretence to giving effect to a particular constitutional right nor can it, by any stretch of the imagination, be seen as establishing a separate adjudicative hierarchy.  Furthermore, the normative commitments underlying the legal framework of arbitration are increasingly incorporated and reflected in the common law of contract.  There is no reason why the specifics of the general standard of fairness and good faith in the common law of contract should not be given shape in the context of petroleum contracts, as is done in the context of labour or rental housing contracts.

[56]   In my view, the absence of two adjudicative regimes, one transformatively equitable and the other not, will address the Supreme Court of Appeal’s concern that failing to precisely define the jurisdiction of the arbitrator, on the one hand, and the courts, on the other, would result in anomalous consequences. Forum‑shopping between these two different systems of law applied in different institutions will disappear.  Instead, what remains is only the choice of arbitration rather than adjudication in the courts, a procedure well known to our law.  And the law will be the same in arbitration as in court adjudication: equitable and giving effect to the demand of constitutional transformation of this part of our industry.  Interpreted in this way, the purpose of introducing a fairness standard in petroleum contracts is better given effect to, without shielding the common law from statutory development.

Referral to arbitration

[57]   The purpose of the Act is not only to transform the petroleum industry but “to provide for appeals and arbitrations”. Section 12B introduces an equitable standard in the framework of the statutory arbitration mechanism under section 12B.  If the same adjudicative standard can be relied on in section 12B arbitration proceedings and court litigation alike, would that detract from the purpose of the Act to provide for arbitrations?  I think not.

. . . . .

[63]   My reading of subsection 12(B)(4)(a) is that it mandates the arbitrator to enter into and interrogate the merits of the alleged contractual practice in order to make a determination into the unfairness or unreasonableness thereof. Likewise subsection 12(B)(4)(b) provides a legislative safeguard to prevent frivolous and capricious use of the section 12B referral mechanism in view of the Controller’s low discretionary threshold.  Indeed, the arbitrator is not only mandated to determine frivolity and capriciousness, but is empowered to make a compensatory award, which imposes remedial and punitive costs beyond that of an ordinary costs award.[1]  This provides a strong deterrent for parties seeking to exploit the section 12B (1) arbitration mechanism.

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Singular act of cancellation

[69]   Engen submits that a single act of cancellation of a contract cannot constitute a contractual practice. In support of this argument, it relies on the decision of Tlhamo, which was approved by the Supreme Court of Appeal.  In Tlhamo, the Court had to determine the meaning of the words “contractual practice”.  In interpreting the words the Court relied on their dictionary meaning and held that a juristic act could not be characterised as a practice, which is a habitual doing or carrying on of something.  The Court concluded that the termination of an operating lease agreement and the month‑to‑month agreement did not constitute a contractual practice that could be referred to the arbitrator in terms of section 12B of the Act.

[70]   In Maphango, this Court analysed the meaning of practice in the context of the RHA. It concluded that a once off termination of a lease may amount to a practice.  Cameron J said:

“It has long been established in our law that a ‘practice’ may consist in a single act.  This accords with one of the dictionary meanings of the word. . . .  A cramped interpretation of ‘practice’ would thwart its good ends.”[1]

 

[71]   Engen made much of this Court’s decision in Maphango being distinguishable from the present matter. The provisions of the RHA differed from those in the Act; the jurisdiction of the tribunal under the RHA and the arbitrator under the Act differed; and the RHA implicated fundamental rights.  In my view, none of these considerations sufficiently distinguishes Cameron J’s interpretation of the word “practice” from applying to this matter.  This interpretation was reached independently of the distinguishing considerations advanced by Engen on the basis of the ordinary meaning of the word; established jurisprudence; and adopting a broader interpretive approach that accords with the Constitution.

[72]   That a practice can amount to a single act is well founded in labour law. A single act of dismissal constitutes an “unfair labour practice”.  In Marievale, Goldstone J held:

“The reference to ‘labour practice’ in the definition of ‘unfair labour practice’ relates to a customary or recognised device, scheme or action adopted in the labour field. . . .  [I]t does not in any way relate to habitual or repetitious conduct on the part of a particular employer.”[1]

. . . . .

[76]   I therefore conclude that a single act of cancellation may amount to a contractual practice under section 12B. Like any other contractual practice, it is susceptible to arbitral correction under section 12B(4)(a).  The arbitrator’s corrective relief would extend to the terrain of setting aside the unfair or unreasonable act of cancelling the underlying agreement and directing that the parties reinstate their agreement.[1]  It follows that Engen’s argument that the arbitrator’s corrective power under section 12B presumes the backdrop of an ongoing contractual relationship that can be subject to such correction must fail.