Summary of Judgment

1. Introduction

This was a contractual damages matter in the Gauteng Local Division, Johannesburg, arising from the alleged breach or repudiation of a written aircraft lease agreement. The proceedings were instituted by Cirano Investments 307 (Pty) Ltd (the plaintiff and lessor of the aircraft) against Execujet Aviation (Pty) Ltd (the defendant and lessee).

The matter came before Wepener J on a separated preliminary issue. By agreement between the parties, and pursuant to a separation order, the court was asked to determine in limine a single interpretive and characterisation question: whether clause 11.4 of the written lease agreement precluded the particular damages claim advanced by the plaintiff.

The general subject-matter of the dispute concerned the recoverability of a damages claim framed with reference to the contractual rental for the period of breach, less certain saved expenses, in the face of a contractual exclusion clause purporting to exempt liability for, among other things, loss of profit and indirect/special/consequential damages.

2. Material Facts

The parties concluded a written agreement in terms of which the defendant leased an aircraft from the plaintiff. The plaintiff’s case (for purposes of the separated issue) proceeded on the basis that the defendant breached or repudiated the agreement, entitling the plaintiff to pursue contractual damages.

It was common cause that the contract contained an exclusion clause (clause 11.4) providing, in substance, that the parties would not be liable “under any circumstances” for indirect, special or consequential damages, and further excluding liability for any loss of profit, loss of ability to make use of the aircraft, or other special damages, whether arising directly or indirectly out of the agreement or out of grossly negligent or wilful conduct.

It was also not in dispute (as recorded by the court) that clause 11.4 excluded claims for special damages, but did not exclude claims for general damages. The controversy lay in whether the plaintiff’s pleaded claim, by its formulation, was in truth a prohibited loss-of-profit claim.

The plaintiff’s damages claim, as relevant to the separated issue, was for the rental for the period during which the defendant was in breach. The plaintiff further pleaded that it deducted from this amount certain expenses it would not incur due to the breach, described as maintenance costs, replacement repairs or components, and insurance costs, averaging US $48,100 per month over a period stated as 11.25 months, totalling US $541,126.00. The plaintiff treated this deduction as reflecting mitigation and/or saved costs.

The defendant’s contention was that, because the plaintiff claimed rental less expenses, the plaintiff was effectively claiming a profit figure, which was expressly barred by clause 11.4.

3. Legal Issues

The central legal question was whether clause 11.4, properly construed and applied to the claim as pleaded, precluded the plaintiff’s damages claim on the basis that it constituted an impermissible claim for loss of profit (or otherwise excluded loss).

This required the court to engage primarily in a question of law, involving the characterisation of the pleaded damages claim as either general damages (recoverable) or special/consequential damages or loss of profit (excluded). The dispute also involved the application of legal principles concerning expectation damages and mitigation to the pleaded computation of loss, to determine whether the claim’s structure altered its legal nature.

Although the parties’ arguments touched on the arithmetic form of the claim, the court’s task on the separated issue was not to quantify damages on evidence, but to decide whether the claim was barred in principle by the contractual exclusion clause.

4. Court’s Reasoning

The court approached the separated issue by distinguishing between different categories of contractual loss and by addressing the relationship between mitigation and the calculation of damages. It noted (with reference to standard exposition) that the innocent party’s loss can be understood as including a primary component (the value of the promised performance, less the value of counter-performance excused) and a secondary/consequential component (additional losses such as interest or profit that would have been earned). Within that framework, the judgment treated “additional” or “consequential” damages as conceptually distinct from the claim for the value of performance.

The court then relied on established authority distinguishing general damages from special damages, emphasising that general damages are those that flow naturally and generally from the kind of breach in question and are presumed to have been within the parties’ contemplation, whereas special damages are those ordinarily too remote unless specially contemplated in the particular circumstances. The court noted the parties’ common position that clause 11.4 excluded special damages but not general damages, narrowing the dispute to whether the plaintiff’s claim was properly categorised.

In evaluating the plaintiff’s pleaded claim, the court accepted that a claim for rental for the period of breach has been recognised in authority as a claim for general damages. It further accepted that a plaintiff is, in principle, entitled to institute such a claim. The critical point, however, was whether the plaintiff’s deduction of saved expenses converted the claim into one for loss of profit, which clause 11.4 would exclude.

The court reasoned that the deduction of expenses was consistent with the fundamental compensatory principle that damages aim to place the injured party in the position it would have occupied had the contract been performed, but no better. The court referred to authority stating that upon cancellation the plaintiff is entitled to full id quod interest but no more, and that a plaintiff must not, by cancellation, be placed in a better position than performance would have produced. In this sense, if the plaintiff had claimed the gross rental without deducting costs that would have been incurred to earn it, the claim would have been objectionable because it would include amounts the plaintiff would not have retained had performance occurred.

The court treated the deduction not as an attempt to re-label a profit claim, but as an acknowledgement of the duty to take reasonable steps to mitigate loss and of the necessity to account for savings that reduce the net loss. It noted that ordinarily a defendant must plead and prove non-mitigation, but in this case the plaintiff’s pleading made that enquiry easier by expressly setting out the deduction.

The judgment rejected the defendant’s submission that the claim’s structure (rental less expenses) necessarily meant the plaintiff was seeking “profit”. The court held that the fact that a calculation of general damages (after accounting for mitigation or saved costs) might coincide numerically with an amount that could resemble “profit” did not alter the juridical nature of the claim. The court emphasised that, absent evidence or facts establishing what “profit” would be (and what expenses would properly be included in that computation), there was no basis to conclude that the plaintiff’s pleaded amount was in truth a loss-of-profit claim. The court also considered the defendant’s reliance on a dictionary definition of “profit” and found that, without a factual foundation showing the relevant expenditure and the true profit position, the definitional argument did not advance the defendant’s case.

On that basis, the court concluded that the plaintiff’s claim fell within the boundaries of general damages, properly calculated with reference to mitigation/saved expenditure, and was therefore not precluded by clause 11.4.

5. Outcome and Relief

The court granted declaratory relief determining the separated issue in favour of the plaintiff. It declared that the plaintiff’s damages claim was not precluded by clause 11.4 of the written lease agreement.

The defendant was ordered to pay the costs of the hearing on the separated issue.

Cases Cited

LAWSA Volume 5 Part 1 (Second Edition) paragraph 493 was referenced for general exposition on contractual loss.

Shatz Investments (Pty) Ltd v Kalovyrnas 1976 (2) SA 545 (A).

Whitfield v Phillips and Another 1957 (3) SA 318 (AD).

Lavery and Co. Ltd. v Jungheinrich 1931 AD 156.

Tos v Angelo Outfitting Stores 1915 TPD 22.

Bonne Fortune Belegging Bpk v Kalahari Salt Works (Pty) Ltd and Others 1973 (3) SA 739 (NC).

Victoria Falls & Transvaal Power Co. Ltd. v Consolidated Langlaagte Mines Ltd. 1915 AD 1.

Novick v Benjamin 1972 (2) SA 842 (AD).

Holmdene Brickworks (Pty) Ltd v Roberts Construction Co. Ltd 1977 (3) SA 670 (A).

Soar h/a Rebuilds for Africa v J.C. Motors en ‘n Ander 1992 (4) SA 127 (A).

Legislation Cited

No legislation was expressly cited in the judgment.

Rules of Court Cited

No specific rules of court were expressly cited in the judgment. The separation of issues was recorded as having been agreed and ordered, but without reference to a particular rule.

Held

The court held that, although clause 11.4 excluded liability for special/indirect/consequential damages and expressly excluded loss of profit, the plaintiff’s pleaded claim was properly characterised as a claim for general damages consisting of the contractual rental for the period of breach, reduced by saved expenses reflecting mitigation and avoiding over-compensation.

It was further held that deducting expenses from the rental claim did not transform the claim into one for loss of profit merely because the resulting net figure might resemble a profit-type computation. In the absence of evidence establishing a profit calculation, the defendant’s characterisation argument lacked merit.

Accordingly, clause 11.4 did not bar the plaintiff’s damages claim, and the defendant was ordered to pay the costs of the separated hearing.

LEGAL PRINCIPLES

The judgment applied the principle that damages for breach of contract are compensatory and aim to place the innocent party, so far as money can do so, in the position it would have occupied had the contract been properly performed, while ensuring that the innocent party does not obtain more than its true contractual interest.

The judgment applied the distinction between general damages and special damages. General damages are those that flow naturally and generally from the type of breach and are presumed to have been contemplated by the parties. Special damages, while causally connected to the breach, are ordinarily treated as too remote unless specially contemplated in the circumstances of contracting.

The judgment treated a claim for contractual rental during the period of breach (in the context of the lease arrangement before it) as a form of general damages, and reaffirmed that such a claim is, in principle, competent.

The judgment applied the rule that the innocent party is obliged to take reasonable steps to mitigate its loss. It further recognised that mitigation (including accounting for savings or avoided costs) operates to prevent the innocent party from being placed in a better position than performance would have produced, and that a pleading reflecting mitigation does not, without more, alter the legal category of the damages claim.

Finally, the judgment applied an interpretive and classification approach to exclusion clauses, holding that an exclusion of “loss of profit” does not automatically encompass every claim whose computation involves deductions for expenses, particularly where the claim remains, in substance, one for general damages and where no factual basis is established to re-characterise it as a profit claim.