MDA Law
Mitsubishi Hitachi Power Systems Africa (Pty) Ltd v Murray and Roberts Ltd and Another (Case no 1011/2019) (ZASCA) ZASCA 110 (29 September 2020)
On 29 September 2020 the Supreme Court of Appeal (hereinafter the “SCA”) handed down judgment in which an appeal by Mitsubishi Hitachi Power Systems Africa (Pty) Ltd (hereinafter “Mitsubishi”) from the Gauteng Division of the High Court, Johannesburg was dismissed with costs.
The Facts
The appellant, Mitsubishi, the contractor, entered into an agreement with the Second Respondent, Eskom Holdings Soc Ltd (hereinafter ‘Eskom’), the employer. Mitsubishi then subsequently entered into agreements with the First Respondent, Murray and Roberts Ltd (hereinafter “M&R”), the subcontractor.
M&R alleged that a further agreement, ancillary to the main contract, was entered into between Eskom and Mitsubishi. This was known as the incentive agreement. More importantly, M&R were not a party to this incentive agreement but sought the disclosure of relevant details and actual benefits accrued by Mitsubishi to Eskom under this agreement.
Proceedings before the SCA
When adjudicated upon, the adjudicator refused to order that Mitsubishi make disclosures to M&R despite finding that M&R had a contractual right to the disclosures but reasoned that Mitsubishi had a contractual obligation, under the main contract. This was to keep the incentive agreement confidential.
Application was then made to Gauteng Division of the High Court by M&R to secure disclosure. In this instance the Court found no reasons justifying Mitsubishi’s withholding both the disclosure of the incentive agreement as well as relevant details with regards to benefits received from Eskom. The Court further held that Mitsubishi should pay costs of such application in the High Court. The judgment for such application is available here.
The SCA Judgment
Unterhalter AJA highlighted three issues to be considered and addressed. These were addressed as follows:
Firstly, did M&R have a contractual right to require disclosure of Mitsubishi?
M&R contended that clause 11.3 of the subcontract agreement provided for its contractual right to disclosure by Mitsubishi. Clause 11.3 states that:
“The Contractor shall, upon receiving any contractual benefits from the Employer under the Contract, pass on to the Subcontractor such proportion thereof as may relate to the Subcontract Works.”
M&R also placed reliance on clause 2.4 of the variation agreement which states:
“Although nothing contained in this Variation Agreement is to be construed as creating a partnership in any legal sense between the Parties, it is nevertheless to be emphasised that the manner in which the parties will act in good faith vis-à-vis each other to completion of the amended subcontracts shall portray a “spirit of partnership”, cooperation and trust…”
M&R argued that its entitlement to its share of benefits from the main contract could only be adequately determined through a disclosure by Mitsubishi made in good faith as to satisfy its overarching obligation.
Mitsubishi made two arguments to the contrary. The first of which was that the contractual benefits derived from clause 11.3 of the subcontract agreement were derived from a contract to which M&R was not a party. The point also raised in this argument was that there was no existence of a so called “incentive” agreement and rather that there were a number of initiative agreements to which M&R was not a party. Secondly, Mitsubishi contended that the variation agreement revised the basis for renumeration to a “cost plus” formula and excluded additional compensation. In response to this, the Court held that neither argument could prevail.
A clear reading of language used in clause 11.3 of the subcontract agreement demonstrated a clear entitlement to contractual benefits. The denial of the existence of the incentive agreement and the terming of such agreement rather as an initiative agreement could only be accepted if Mitsubishi could demonstrate that what was received under such agreement was not a contractual benefit.
The argument that the variation agreement superseded clause 11.3 of the subcontract agreement and altered payment entitlement did not hold and if anything, the variation agreement merely altered the payment basis.
Secondly, now that it was established that M&R enjoyed such entitlement, did Mitsubishi owe a duty to Eskom to keep the incentive agreement and details of such agreement confidential?
Mitsubishi contended that should M&R have had such an entitlement under clause 11.3 of the subcontract agreement, M&R must have simply made a claim without being able to precisely determine the amount entitled to.
The judgment reasons that this could never have been the intention of the parties when concluding the subcontract agreement. Further to this is that contracts are to be interpreted in a manner that gives effect to both commercial efficacy and good faith.
M&R required disclosure of benefits accruing under the contract so that it can adequately enjoy and enforce its right.
Thirdly, what disclosure remedy should be available to M&R?
Mitsubishi submitted that should it make the requested disclosures, it would be in breach of its confidentiality undertakings, contained in clause 1.12 of the subcontract agreement. This clause states that information regarding the contract may not be made available to any third party, under the main contract with Eskom. Mitsubishi relied on the interpretation that third party means any party that is not a party to the contract.
This is in conflict with provisions in the main contract, which differentiate subcontractors from third parties. The contract allowed for making of relevant information available to subcontractors to complete the scope of the works. It was therefore not possible that a subcontractor could be considered a third party as then the subcontractor would not have access to relevant information to complete the scope of the works. Further, as part of the Conditions of Subcontract, disclosures made by contractors and subcontractors we required to be kept confidential from third parties. This again goes to demonstrate that there was no possibility that a subcontractor could be considered a third party.
It was thus held that Eskom, as a party to this appeal, had not attempted to prevent disclosure of such right and there was no reason why an order for such should be withheld.
Moreover, the remedy ordered by the Court was such that Mitsubishi must make disclosure of the portions of the various incentive agreements that are relevant to M&R and allow M&R to ascertain the contractual entitlements which have accrued to them under the incentive agreements.
