Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa [2024] ZASCA 107 (3 July 2024)

The case of Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa involves a loan agreement dispute between Phoenix Salt Industries (the appellant) and The Lubavitch Foundation (the respondent).

The key background facts of the case are as follows:

In 1994, Lubavitch experienced financial difficulties and struggled to service its mortgage loan with Nedbank, facing foreclosure. Phoenix Salt, a company controlled by Messrs Abraham Krok and Solomon Krok (the Krok Brothers), intervened and signed a loan agreement with Lubavitch to settle the Nedbank indebtedness of R5.2 million. As part of the agreement, Golden Hands Property Holdings (a company owned by the Krok Brothers), signed as a surety and co-principal debtor for Lubavitch's obligations.

The loan agreement stipulated that Lubavitch would sell four stands of property to Golden Hands at exactly the loan amount, resulting in a separate written agreement between Lubavitch and Golden Hands. Golden Hands intended to develop cluster houses on the properties and ceded its right to receive proceeds from the sales to Phoenix Salt to reduce Lubavitch's debt.

Central to the case is Clause 9 of the loan agreement, which includes terms related to the sole record of the agreement, representations and warranties, variation or cancellation, and indulgence or waiver. Almost two decades later, in 2017, Phoenix Salt demanded repayment of the loan balance, making the debt due in 2019. They contended that it was a straightforward loan agreement.

Lubavitch, represented by Rabbi Menachem Lipskar and Solomon Krok, provided a different account. They stated that the Krok Brothers devised a scheme to assist Lubavitch in settling the debt, which included using profits from the sale of cluster houses to repay the loan.

Golden Hands paid R2,429,440 to Phoenix Salt from property sale proceeds as part payment of Lubavitch's debt. Lubavitch argued that Phoenix Salt, through the Krok Brothers, waived their right to claim the remaining loan amount, while Phoenix Salt contended that the evidence did not establish a waiver and that it was precluded by the non-variation clauses of the agreement. The high court dismissed Phoenix Salt's application for payment, and the appeal with leave of the high court followed.

The core issue in the case revolves around the interpretation of the loan agreement, specifically whether Phoenix Salt waived its right to claim the remaining loan amount from Lubavitch and if such a waiver is valid in light of the non-variation clauses. The surrounding circumstances, witness accounts, and conduct of the parties play a significant role in determining the outcome of the case.

The ratio decidendi, or the core legal principle, underlying the decision in the case of Phoenix Salt Industries (Pty) Ltd v The Lubavitch Foundation of Southern Africa is the interpretation of contractual provisions, specifically the distinction between variation and waiver in the context of a non-variation clause.

The court affirmed the principle that a non-variation clause, as per SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en Andere, serves to prevent amendments or alterations to the terms of a contract unless certain conditions specified in the clause are met. However, the court clarified that a waiver, which is the voluntary abandonment of a known right, is distinct from a variation. A waiver does not modify the contract's terms but instead involves a party choosing to relinquish a right conferred by the contract for their benefit.

The court determined that the non-variation clauses in the loan agreement between Phoenix Salt and Lubavitch did not preclude a waiver. The clauses addressed additions, variations, and cancellations but were silent on waivers. The court held that the Krok Brothers, acting on behalf of Phoenix Salt, could orally waive the right to claim repayment from Lubavitch without contravening the non-variation clauses.

The court emphasised the importance of interpreting contracts in their entirety and considering the surrounding circumstances, the relationship between the parties, and their conduct. It concluded that the Krok Brothers' conduct demonstrated a clear intention to waive Phoenix Salt's right to enforce repayment against Lubavitch.

Therefore, the ratio decidendi of this case establishes that a non-variation clause does not inherently preclude a party from waiving a right conferred by the contract, as long as the waiver does not modify the contract's terms and is not expressly prohibited by the clause.

Case law referenced in the judgment:

Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A): This case affirmed the principle that a matter should be decided based on the respondent's version, along with admitted facts in the appellant's founding affidavit, unless the dispute is not genuine or the respondent's version is untenable.

SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren en Andere 1964 (4) SA 760 (A): This case established the principle that once parties to a written agreement stipulate that the agreement cannot be altered without specific conditions, any amendment will only be valid if those conditions are met.

Brisley v Drotsky 2002 (4) SA 1 (SCA): The court reaffirmed the Shifren principle, highlighting its purpose to prevent disputes and protect both parties to a contract.

Impala Distributors v Taunus Chemical Manufacturing 1975 (3) SA 273 (T): The court recognised that a party can validly waive a right orally if it is a right that exclusively belongs to that party under the contract, and that non-variation clauses do not override this principle if they are silent on waiver.

HNR Properties CC and Another v Standard Bank of SA Ltd [2003] ZASCA 135; [2004] 1 All SA 486 (SCA); 2004 (4) SA 471 (SCA): The court acknowledged that a waiver of rights under a contract with a non-variation clause may not violate the Shifren principle in certain circumstances, such as when it amounts to a pactum de non petendo or an indulgence related to previous imperfect performance.

Mutual Life and Citizens Assurance Co of New York v Ingle 1910 TS 540: The court concluded that determining the intention of contracting parties solely from the written words of a contract is challenging, emphasising the need to consider surrounding circumstances.

Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; [2012] 2 All SA 262 (SCA); 2012 (4) SA 593 (SCA): This case reaffirmed the principle that interpreting a contract requires considering the entire agreement and the surrounding circumstances known to the parties.

University of Johannesburg v Auckland Park Theological Seminary and Another [2021] ZACC 13; 2021 (8) BLCR 807 (CC); 2021 (6) SA 1 (CC): The Constitutional Court clarified the role of extrinsic evidence in contractual interpretation, emphasising that while interpretation is a matter of law, contextual evidence is crucial for understanding the factual matrix, purpose, and identification of the contract.